As long as the legislature does not adjust section 25 of the German VAT Act, non- or double-taxation can arise in cases of cross-border supplies of travel services. Therefore, it is not only tour operators who should determine how to avoid double-taxation or whether the applicable laws allow for non-taxation. Event agencies and other industrial sector businesses recharging travel services may also be affected. Even intra-group cost transfers across the border should be monitored.
Section 25 of the German VAT Act, according to its wording, is only applicable to the supply of travel services to non-taxable persons. Travel services supplied to other taxable persons cannot be subject to this section of the legislation, though the European Court of Justice decided, in Commission v Spain (C-189/11), on September 26 2013 that the margin scheme according to article 306 of the EU-VAT-Directive is also applicable to taxable persons.
According to the clear decision of the Federal Fiscal Court, entrepreneurs can opt to apply section 25 of the German VAT Act or to refer to the broader provisions of the EU VAT Directive. This grants greater freedom to entrepreneurs. For example, if a company established in Germany supplies accommodation, meals and airport-transfer services in Spain to another taxable person, the supplies are not subject to VAT. The supplies are subject to the tour operator margin scheme in Spain and, from a Spanish perspective, are deemed to be rendered in Germany, where the supplier is established. Hence, Spain refers the right for taxation to Germany. However, section 25 of the German VAT Act limits taxation to supplies to non-taxable persons, which means that only supplies to non-taxable persons may be deemed to be rendered in Germany, where the supplier is established. Supplies to taxable persons are deemed to be rendered in Spain, according to section 3a paragraph 3 and section 3b of the German VAT Act. Consequently, Germany refers the right for taxation to Spain.
For example, if German event agencies do not charge any VAT to their customers, this can be a great advantage for customers who are not entitled to a full input VAT deduction, such as banks or insurance companies. Their costs are then reduced by the amount of the VAT not charged. In many countries, input VAT deduction is not possible when applying the margin scheme and the event agencies cannot deduct input VAT in the country where the event takes place, which naturally leads to higher costs. Such costs would also be charged to the customers, which means that the VAT advantage would be reduced for the customers. However, to date, many event agencies have already charged the gross amounts to their clients. Hence, at the end of the day, the VAT advantage remains.
The same applies to supplies rendered in Germany by entrepreneurs established in another country to other taxable persons. In this situation double taxation may occur. The only way to avoid this situation is for the customer to refer to the broader provision of the EU VAT Directive which means that no VAT liability is shifted to him.
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