Group on the Future of VAT (GFV)

On November 9, 2022, the Group on the Future of VAT (GFV) held its 39th meeting to discuss the VAT treatment of the travel and tourism sector. The meeting minutes have been released, providing valuable insights on the VAT treatment of the EU travel and tourism sector. Here's a quick look at the key takeaways.  

VAT rules and the travel and tourism sector

The meeting opened with a contractor presenting the interim study report on VAT rules applicable to the travel and tourism sector. The presentation consisted of three overarching parts; 

1) Special VAT scheme for travel agents

2) VAT rules on passenger transport

3) VAT refund to non-EU travellers and duty-free shop

The presentation of the interim report was followed by a discussion of the Commission's policy options. These options are aimed to address the shortcomings of the current VAT regime applicable to travel and tourism. No draft of the interim report is currently being made available, and the final report will be shared with the Member States in due time. 

Policy options for VAT rules on passenger transport

The Commission Services included several elements related to the place of supply rules and rules for input and output transactions. These elements have been grouped into four packages, each of which could serve as a potential final policy choice. The packages focus on the following areas:

• Administrative simplification
• Exemption of international services
• Taxation of intra-EU services
• Green transport promotion

Although VAT rate changes were mentioned, a few delegates pointed out that any changes to VAT rates, such as removing the current exemptions on passenger transport, would be a delicate political and social issue. In addition, this would increase prices, which some delegates found problematic. Therefore, it would be essential to consider the geographical and social elements during the study before seriously considering any VAT rate changes.

Policy elements relating to the place of supply rules:

Most delegates at the policy meeting believed that the easiest way to handle the place of supply rules for passenger transport services would be to use either the country of departure or the country of destination. However, it was also noted that using either of these options may not always result in a fair allocation of taxes.

In addition, most delegates at the meeting agreed that the policy package aiming to streamline administrative processes was a good starting point for achieving the goals of legal clarity and simplicity. However, some delegates mentioned a need to clarify the rules governing the place of supply and the definition of exemptions for passenger transport services. 

Despite most delegates supporting VAT rule reforms, some suggested a transition period to allow transport operators to adjust to the revised rules. It was also noted that further analysis and internal discussions are necessary before reaching a final decision.

The special VAT scheme for travel agents

The Commission identified four areas where legal intervention is necessary due to inconsistencies in the current rules. Each area includes several policy options.

1. The scope of the special VAT scheme for travel agents
2. The place of supply rules
3. Definitions of concepts
4. The calculation of the margin

During the meeting, the delegates expressed their contentment with the current operation of the TOMS scheme for travel agents. They emphasised that the TOMS scheme effectively generates revenue for Member States and provides a straightforward solution for travel agents. Due to this, most delegates were open to retaining the core elements of the TOMS scheme. 

However, the delegates agreed that improvements to the existing TOMS scheme are necessary to create a level playing field for travel agents and to ensure uniform application of the rules across the Member States.

VAT refund scheme for tourists and duty-free shops

The VAT refund scheme for non-EU travellers was discussed at the meeting, and many delegates favoured interoperability between the existing digitised systems of Member States. 

Some delegates also supported the idea of digitalising VAT refund systems. However, some preferred to maintain the current system. Among those Member States without a digital refund system, most delegates believed that full harmonisation of national systems with a central data repository would be the ideal solution. However, the Commission should evaluate the costs and benefits of such harmonisation before implementing it.

The meeting closed with a few information points, one of them being an update on VAT on e-commerce.

VAT e-commerce update

After being in effect for over a year, the Commission services updated the new VAT rules for e-commerce. They praised the continued efforts of Member States to implement these rules thoroughly. A review conducted six months after implementation confirmed their success in achieving fairer taxation and business simplification. However, the Commission Services pointed out some IT implementation issues. The Commission Services also emphasised that stabilising the system depends on all Member States fully implementing these rules.

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