Tour Operators Margin Scheme (TOMS)

The Tour Operators Margin Scheme (TOMS) is a special VAT scheme for travel agents and tour operators established in the EU or the UK. Under TOMS, VAT is applied to the operator’s profit margin rather than the full selling price of the travel package.

The margin is calculated as the difference between what the customer pays and the VAT-inclusive cost of the services bought in from suppliers.

The scheme was introduced to simplify VAT compliance for travel businesses operating across multiple countries. It helps prevent double taxation and supports a fair allocation of VAT revenue between the operator’s country and the destination where the travel services are consumed.

Although TOMS was introduced to simplify VAT compliance for agents and tour operators, how leisure and MICE tourism is distributed has changed since the current framework was introduced. The European Commission is concerned that regulation is inconsistently applied, contains ambiguity, and can cause unfairness, undermining the competitiveness of EU businesses. A consultation was completed in 2025. Since then, options for reform have been discussed in various forums, involving participation from ETOA. A legislative proposal accompanied by an economic impact assessment is expected 2026Q4.

Current options include the potential taxation of non-EU agents and operators on their gross margins. This would significantly increase retail price to non-EU consumers, putting EU destinations at a competitive disadvantage. An easy way to address that disadvantage would be for the traveller’s home location to be the determining factor in the applicability of VAT on the margin. As we believe there is very little EU to non-EU B2C sales volume, this may represent an opportunity.

A worse option, which we understand has not yet been dismissed, would be what Germany unilaterally asserted as the correct legal interpretation of the law in 2021, but repeatedly chose not to enforce in the face of widespread concerns. If applied throughout the EU it would require non-EU operators to register in all destinations their clients visit, and pay sales tax on the retail price. This would drive retail price up even further and increase administrative burden for non-EU businesses and EU revenue authorities.

ETOA’s June 2026 memorandum on competitive risk provides a political context for reform and highlights risk to EU export revenue and soft power, and summarises what we understood to be the main regulatory options under review. We will continue to recommend reform that works for non-EU agents and operators selling EU destinations to non-EU clients, and the value-adding ecosystem of the European inbound industry.

As views vary among Member States on the merits of various proposals, and unanimity among EU27 is required, progress will be challenging. Nevertheless, the impact of imposing VAT on non-EU sales would, in ETOA’s view, be damaging to EU export revenue and its soft power: it would be seen as a ‘tariff’ on those choosing to visit. It would be a tax on the distinct service of packaging that takes place outside the EU. It would also be very hard for the European Commission to enforce.

In September 2026, ETOA will survey the market to assess potential impact of the various options under review in advance of the publication of the expected regulatory proposal.