The State of TOMS 2022

Is it time for change? Is there finally light at the end of the tunnel for tour operators or are we still relying on a scheme from decades ago. The special scheme (TOMS) is designed for businesses that buy and resell travel, accommodation and certain other services in their own trading name. But does the change still enable VAT to be accounted for on travel supplies within the EU without businesses having to register in that country?.  Does it still account for VAT in every EU member state in which the services and goods are enjoyed? Let’s take a closer look.

After 40 years, things are finally changing 

The European Union has decided that after 40 years, the scheme needs to be relooked at and brought up to speed with the 21st century. The European Commission is planning a reformed proposal in 2023. This is part of the EU Tax Action Package reforms, announced in 2020.

The scheme has been left relatively unchanged for decades with the exception of small changes to coincide with online travel marketplaces and platforms. The scheme has not included the “new digital world” as we know it. The current issues of the scheme are mainly the following:

• Is the scheme fit for its purpose by ensuring that VAT is collected by the EU where goods and services are consumed.
• Is the scheme simplified enough to actually explain and understand B2B travel?

• Multiple applications have been submitted to the relevant VAT authorities in respect of tour operator expenses, but there is no hard and fast rule of how this should be dealt with. The scheme is left open to interpretation and really only gets dealt with on a case by case level. of efficient and equitable rules of the scheme to come into effect. 

Proposals for the new TOMS Schemes in 2023

Despite 2023 being a year from now, according to the European Commissioner there has been an exciting mission launched. The study to start interrogating and revise the scheme as a whole. The EU is convinced on making changes to VAT rules applicable to passenger transport and the risks thereof. Or designing a scheme that is bespoke for travel agents. 

Which countries are likely to be affected ?

Austria:

Previously, Austria applied TOMS for travel packages sold to private consumers (B2C transactions) and standard or normal VAT rules applied to B2B transactions. So where does the change come in? As from 1 January 2022, the Tour Operators Margin Scheme (TOMS) in Austria is extended to apply TOMS to all types of customers. These changes were driven by a result of a decision of the Court of Justice of the European Union (CJEU) issued on 27 January 2021. The Court Justice of the European Union determined that this approach was opposed to the EU VAT law, therefore the TOMS scheme is extended to all types of consumers with effect from 2022.

Germany:

The German Ministry of Finance had announced in February 2021 that non-EU businesses that provide travel services are not allowed to use the Tour Operator Margin Scheme (TOMS). Despite it being announced in 2021, it is only effective in 2023.  This position could eliminate competitive advantages that non-EU travel agents have used and enjoyed in Germany when buying and reselling travel services. The tricky factor is passenger transport, as this could cause a registration risk which customers will need to avoid. It is always advisable to get an expert opinion prior to reclaiming certain MICE expenses. 

Croatia:

In January 2021, Croatia changed its approach to the taxation of non-EU established businesses. Unlike Germany, however, the change in Croatia was effected quickly and provided insight into how the removal of access to the TOMS rules in the EU could impact non-EU established businesses.

Background on TOMS

The TOMS, Tour Operator Margin scheme was introduced in 1977. It is a special scheme for businesses that buy and resell travel, accommodation in their own registered business name. It enables VAT to be accounted for on travel supplies within the EU without businesses having to register and account for VAT in every EU member state in which the services and goods are enjoyed.

Although any EU legislative changes will take time to implement, it is important for businesses to stay up to date with new rules and regulations as this will largely have an impact on your business and travel packages as a whole. 

Consult with the experts on all your TOMS related questions.