New EU VAT rules for the accommodation and transport sector

Recent reforms proposed by the European Commission as a part of the ViDA plan are set to affect platform economy sectors related to VAT on tourist accommodations and passenger transport. Here are some of the most significant takeaways and how they could impact VAT on travel and transport in the EU. 

Background

The European Commission (EC) has published legal proposals regarding the VAT treatment of short-term accommodation rentals and passenger transport sold via a digital platform. These proposals fall within the scope of the VAT in the Digital Age program, aiming to adapt the pitfalls of the current VAT system to meet the fast-changing modern and digital business environment.  

The new rules and proposals were sparked after the European Commission conducted a study of the platform economy within ViDA. The result of the study shows that up to 70% of underlying suppliers using a platform are not registered for VAT. As platforms such as Airbnb and Uber directly compete with the hotel sector and private taxi firms, the EC has flagged cause for concern that VAT is not being collected on the underlying rentals and transport. This, in turn, is creating an unequal playing field for private hotels and taxi firms as well as a loss of VAT for member states.

Who will it affect? 

The new rules are set to include large travel platforms such as Airbnb and Booking.com, as well as intermediaries and agents alike. This includes agents that operate on a booking platform, where users book accommodation or passenger transport in the EU and businesses that act as agents for accommodation owners or transport suppliers and use an online booking system.

The proposed rules

The European Commission has proposed to change the law that the platform operator will be deemed the supplier for the underlying supply of accommodation or transport. Why the need for high-alert? This means that if the accommodation owner or transport supplier is not registered where the property or transportation is provided, the platform will be liable to pay the VAT on the supply directly to the tax authorities. 

Some key points that determine the proposed VAT treatment are as follows: 

The property owner or transport supplier will make a deemed supply of the property/transport to the platform/intermediary. The intermediary will then make a deemed supply to the user/client/consumer/traveler. In this case, the intermediary/platform will be responsible for paying the VAT collected on the transaction to the tax authorities of the relevant member state (where the property is located or the transport is supplied). 

To do so, the intermediary/platform may need to be VAT registered in the country of supply or be required to use the One Stop Shop to account for the VAT. 

What if the underlying supplier/owner is VAT registered? 

If the suppliers or owners are VAT registered, the intermediary/platform isn’t wholly off the hook. They will still be responsible for providing all suppliers’ relevant tax details and details of supplies to the appropriate authorities. 

When will the new rules come into operation?

The confirmed implementation date will depend on all member states agreeing to adopt these new rules. However, the Commission hopes to introduce the changes from 1 January 2025.

Navigate the new VAT landscape with VAT IT

Changing legislation and VAT treatment rules is not only daunting but risky without the right guidance to answer any questions, doubts, or non-compliant areas of VAT exposure. Fortunately, you don’t have to navigate your VAT liabilities or recovery processes in the dark. 

Curious about how the new rules may further impact your business? Reach out to one of the VAT IT experts here - we’ve got you (re)covered!