Changes to the treatment of VAT in Germany
9th February 2021
A basic principle of EU VAT is that it is payable on services that take place within the EU, and it is payable in the member state in which the service is enjoyed and on the final price paid by the consumer. A simplification measure called “The Tour Operators’ Margin Scheme” was implemented, enabling companies based in the EU to avoid having to register for tax in each member state. They paid tax on costs where it was incurred and paid VAT on their margin in the country where it was sold.
The tax status of non-EU based operators who sell EU destinations has been contentious. For many years, companies based in, say, the US, were buying accommodation in Europe, paying the VAT, packaging the product and selling it without any further concern. After all the “Value” of their margin was being “Added” in the country where the product was being sold. And in leaving the tax paid in the destination, operators were mimicking the behaviour of other EU operators who operated under TOMS and so were largely invisible to tax authorities. It seems that so long as they were not based in the EU, and so long as they were not selling to EU citizens, little was being done. Yet arguably the principle remained that a liability was being incurred: but given the comparative volumes of non-EU visitors, it was hardly worth chasing.
That has changed as a result of Brexit. The UK sends more tourists to Europe than the US, China and Japan combined.
Germany announced on the 29th January 2021 that third country (i.e. not in the EU) businesses should not be to be within TOMS. It follows that the “normal” VAT rules should be applied. Thus German VAT will have to be paid and accounted for on services enjoyed in Germany. This applies to all transactions, both B2C and B2B is effective from 1 January 2021.
As David Bennett, the ETOA tax expert has pointed out, it is important to know that this is the opinion of the tax authorities. An influential opinion, but it is not based on a change in the law or on new case law. But it is now probable that the German authorities will start to approach third country businesses to seek the payment of VAT. It remains to be seen if other member states will follow suit but there must be a high likelihood that they will. Similar payment obligations would then exist elsewhere.
This is far reaching: under this German interpretation any company selling any tourism service that is “enjoyed” in Germany will have to account for VAT. This includes all services bought off an intermediary, whether it is in Germany, the EU or in a third country. We anticipate that the means by which this VAT will be paid will vary from one situation to another.
This could function as a punitive retrospective tax for many operators, as well as a considerable burden reclaiming input and paying output VAT.
It is wholly unclear what will happen to products and services that are bought off German (or other EU) wholesalers, who have to account for tax under TOMS on their wholesale supply; there is a real danger of double taxation, rendering the services uncompetitive.
We are urgently seeking clarification from the German authorities. Please join this expert webinar where we will discuss the situation.
- Tom Jenkins, CEO of ETOA
- Dr. Volker M. Jorczyk (VJO), TTL Tourism Tax & Law, Rechtsanwaltsgesellschaft mbH
- David Bennett, VAT Consultant, Elman Wall Bennett
Please see a recording of the webinar below