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CJEU decision emphasises need for harmonisation of the special VAT scheme for travel agents

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Fernando Matesanz of Spanish VAT Services reports on a ruling that is likely to generate controversy among certain EU member states regarding the application of the place of supply rules.

The Court of Justice of the European Union (CJEU) recently issued a judgment (Case C-108/22, C.sp. zo.o.) on the complex and controversial special VAT scheme for travel agents.

The crux of the case

The case concerned a Polish entity which carries out its economic activity as a ‘hotel services consolidator’. This entity has no accommodation facilities of its own and therefore purchases, on its own behalf and for its own account, accommodation services from other VAT-able persons and resells them to its customers. In a few cases the resale is carried out with ancillary services such as consultancy services or assistance with travel arrangements.

The question referred to the CJEU asked whether the special scheme for travel agents can be applied to such an activity (a mere resale of accommodation services).

In this respect, the court pointed out in its ruling on June 29 2023 that if the general place of supply rules applied to the activities usually carried out by travel agents, the VAT management would become practically impossible. The services usually provided by such entities (accommodation, transport, events, etc.) have very specific place of supply rules that would mean that VAT would have to be paid in different member states, which could be unmanageable in practice.

Avoiding this type of difficulty is precisely what the special scheme for travel agents seeks to do. According to the CJEU, the activities involved in reselling accommodation services are identical, or at least comparable, to those carried out by a travel agent or a tour operator. For this reason, it would not be correct to exclude them from the special VAT scheme on the sole ground that they are supplied without being accompanied by other services.

The court argued that the geographical diversity of the hotels which are the subject of such services causes practical difficulties for the management of VAT that must be avoided.

Clarity and controversy

The CJEU has thus provided clear reasoning on an issue that is recurrently raised by companies involved in this type of activity. It seems to be a pronouncement with a clear practical sense that aims to facilitate, in some way, the VAT management of entities operating in this sector.

However, it is likely to have created controversy in certain member states where, in order to be able to apply the special scheme for travel agents, there is a requirement to be dealing with a truly complex service. That is, according to the legislation of some member states, the transaction carried out by the taxable person should involve a bundle of several supplies.

For example, in the case of Spain, the VAT regulations state that for the application of the special regime, ‘travel’ means accommodation or transport services provided jointly or separately and, where appropriate, with other services of an ancillary nature. Therefore, it is not fully clear whether an activity consisting of the mere resale of accommodation services fits entirely within this definition. The same may happen with other member states.

In fact, the VAT Directive refers to this special scheme as applicable to transactions carried out by travel agents that deal with customers in their own name and use supplies of goods or services provided by other taxable persons, in the “provision of travel facilities”. It is, again, unclear whether a resale of accommodation services is a provision of travel facilities.

A pressing need for action

All of the above means that the revision and harmonisation of the special regime for travel agents at EU level is becoming urgent. This issue has been on the European Commission's agenda for some time, but its discussion has been postponed.

The truth is that the special scheme presents a number of inconsistencies that are creating concerns for operators in the sector and should be addressed. These inconsistencies relate mainly to the scope of the special scheme as it is not entirely clear to which type of activities it should apply (only travel, congresses, events, etc.). They also concern the place of supply rules for these services, as the current VAT regulation seems to benefit third-country operators to the detriment of EU operators, and the definition of certain concepts that are affected by the special scheme.

As is seen above, and although it may seem surprising, there is no common position within the EU on what should be understood by the term ‘travel’.

The CJEU´s judgment, which seems to make important practical sense, reminds us that there is an urgent need to return to this issue as it affects an industry of paramount importance in the EU. Moreover, the current regulation is beneficial to non-EU operators to the detriment of EU companies. Every day that goes by without modifying this aspect is a lost opportunity that we cannot afford.

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