The ECJ case of Maria Kozak v Dyrektor Izby Skarbowej w Lublinie (C-557/11, published on 31 October 2012) highlights the complexity of a special VAT scheme for tour operators.
The “Tour Operator Margin Scheme” (TOMS) is compulsory, preventing recovery of VAT on relevant purchases, but charging VAT only on the margin between purchases and sales. Importantly, the scheme is not restricted to travel agents or tourist businesses, but includes all businesses which make qualifying supplies of the following services:
- passenger transport,
- hire of a means of transport,
- trips or excursions,
- services of tour guides,
- use of special lounges at airports.
The decision may therefore be of relevance to passenger transport businesses which also arrange guided tours, theatre trips, over-night accommodation, meals, and so on.
Maria Kozak ran a tour company. She used her own “in-house” fleet of coaches in Poland to transport passengers. She also bought in accommodation and meals from third party suppliers and re-supplied these to tourists, together with own transport services, as a single, all-inclusive package.
Ms Kozak applied TOMS only to the accommodation and meals, not to the passenger transport services, even though this was part of the overall package supplied to tourists. It was an advantage to Ms Kozak’s business to do so, as passenger transport services attract a reduced rate of VAT in Poland (similar supplies could be zero-rated in the UK).
The Polish VAT authorities argued that there was one single supply, encompassing accommodation, meals and transportation; and that the transportation was ancillary to the overall tourist package, which should be subject to TOMS in its entirety (and therefore subject to the standard rate of VAT), including the passenger transport service.
The ECJ noted that EC VAT law (Directive 2006/112/EC) applied TOMS only to those services bought in from third party suppliers for resupply as a tour operator service to travellers; and that it was irrelevant “whether those [transport] services are or are not an essential part of that overall tourist service”. The court reasoned that in-house services, such as transportation, could not be subject to TOMS. It therefore decided that Maria Kozak had correctly applied the reduced rate of VAT to the in-house element of the tourist package (i.e. the passenger transport service).
This case not only highlights the need to identify supplies to which TOMS must be applied even in unexpected businesses such as passenger transporters, hoteliers, etc. It also highlights the need to identify (and value) separately any elements of those supplies which are sourced “in-house”. Only then can the complex calculations for the VAT liability of such supplies under TOMS be considered.
For further information on how to apply the special rules of the Tour Operator Margin Scheme (TOMS), or of any margin scheme, please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown or Kevin Hall.