The European Commission has published a press release regarding the infringement proceedings against a number of Member States in relation to the way in which they have implemented the TOMS legislation – click here for details. 

TOMS is the VAT margin scheme for the travel industry and is effectively aimed at retail as opposed to wholesale transactions where the travel business acts as principal.   The Member States named in the attached (and some others historically) apply TOMS to both retail and wholesale transactions which has lead to an imbalance in treatment between Member States. 

For example, a UK established tour operator selling a French package as principal on a wholesale basis would not be required to account for UK VAT under TOMS as the UK correctly does not subject such transactions to TOMS.  As far as HMRC are concerned, the normal VAT rules apply, so the majority of the supply (eg the accommodation element) is subject to VAT in France.  However if the UK business tried to VAT register in France to account for French VAT, the French Tax Authorities would not require them to do so on the basis they would regard them as a tour operator accounting for UK VAT under TOMS.  This means the transaction is not subject to VAT (although the French VAT incurred on the purchase of the hotel would clearly be irrecoverable).  If a French tour operator had sold the same package on a wholesale basis it would have had to account for French VAT under TOMS, hence the imbalance. 

The impact of the impending changes could mean certain wholesale tour operators established in the UK (and some other Member States operating TOMS correctly) face an increased number of VAT registration liabilities in the EU and a corresponding increased VAT and compliance cost. 

If you would like further information on this and other travel VAT issues contact Julie Park, julie.park@thevatconsultancy.com or on 01962 735350.