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Germany – Travel services: TOMS not applicable

By February 26, 2021July 10th, 2021No Comments

On 29 January 2021 the German Ministry of Finance has published an order on the VAT handling of travel services carried out by companies which are not established in the European Union…

VAT TOMS scheme not applicable to non-EU tour operators according to an order published by the German Ministry of Finance

On 29 January 2021 the German Ministry of Finance has published an order on the VAT handling of travel services carried out by companies which are not established in the European Union. The German text of this order can be found here.

The order is about the EU Tour Operator Margin Scheme (TOMS), a special EU wide VAT scheme for travel services. In a nutshell: Whilst according to regular VAT rules, output VAT is calculated on the sales price whereas the supplier is entitled to deduct VAT amounts paid on input, under TOMS output VAT is calculated on the margin whereas input VAT is not deductible. The margin earned by the provider of travel services is taxed in the jurisdiction where the tour operator is established. The main idea of TOMS is to simplify VAT compliance for tour operators providing international travel services since otherwise those companies would have to maintain multiple VAT registrations.

Now, the order says that TOMS is only applicable to EU based tour operators whereas non-EU tour operators have to apply regular VAT rules. Although this is contrary to the wording of the German VAT Act (which stipulates that the scheme is applicable irrespective of where the tour operator is established) it is in line with the EU VAT Directive (Art 306 seq. EU VAT Directive).

Having in mind that a tax payer can rely on the law whereas the ministerial order is binding only for the tax authorities, there is now potential doubt whether or not companies from outside the EU can still rely on the wording of the German VAT Act (TOMS applicable) or if this is now overruled not only by EU law but also by the order (TOMS not applicable).

The implications of this order for non-EU tour operators buying and selling German travel services (such as hotel accommodation, passenger transport, catering and entertainment taking place in Germany) can be summarized as follow: 

  • If the customer is not in business (B2C travel services), the non-EU tour operator is obliged to VAT register in Germany and has to account for VAT on the sales price charged to the customer. In return, he is entitled to deduct input VAT.
  • If the customer is in business (B2B travel service), it depends on the nature of the service, if the non-EU tour operator has to account for VAT (in particular applicable to certain types of passenger transport services and ticket sales) or if the business customer has to account for VAT (reverse charge scheme, applicable i.e., for guide services, hotel accommodation and catering). If there is no obligation / right to VAT register, input VAT can only be claimed via the 13th Directive refund scheme (subject to reciprocity with the state in which the tour operator is established.)

The rules have to be applied as from 1 January 2021. For previous periods the application of TOMS by non-EU tour operators is generally accepted by the tax authorities. Hence, there is no need to register with retrospective effect and pay VAT on past periods.

It is recommended that non-EU tour operators check their current set up with regard to German activities in the field of touristic services in order to avoid risks and to optimize their VAT.

 

The above information was kindly provided by Hans-Martin Grambeck from Germany; contact: grambeck@umsatz-steuer-beratung.de.