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Group on the Future of VAT (GFV) Meeting on the Application of VAT to the Tourist Industry

January 9, 2023

In its most recent meeting, the Group on the Future of VAT (GFV) addressed how VAT is applied to the tourist industry. The meeting may not have been open to the public, but we have the minutes that were released. Here are the key takeaways from the conversation on the VAT treatment of the EU travel and tourism industry and its major conclusions.

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Work Value-Added Tax Prospects (GFV)

The 39th meeting of the Group on the Future of VAT (GFV) was convened on November 9, 2022, to review the tourist industry's VAT treatment. The minutes of the meeting have been published, and they include some very interesting information on the VAT treatment of the EU travel and tourism industry. An overview of the most important points follows.

VAT Regulations and the Travel and Tourism Industry

As the conference got underway, a consultant presented the results of the study's first phase, which focused on the VAT regulations that affect the tourist industry. There were three main sections to the presentation:

1) Tax breaks or special VAT rates for tour operators

(2) The Passenger Transportation VAT Regulations

(3) VAT refunds for travelers outside the EU and duty-free shops

After the interim report was presented, the Commission members deliberated on possible courses of action. These alternatives are meant to remedy problems with the present VAT policy that is in effect for the tourist industry. At the moment, neither a draft nor a preliminary version of the interim report is available. However, the member states will have access to the final report when it is ready.

Considerations for Passenger Transportation VAT Policy

The Commission Services had a number of rules about where inputs and outputs should be placed. These components have been bundled into four distinct options, each of which might represent the best course of action moving forward. The following topics are highlighted by the packages:

  • Streamlining of bureaucratic processes

  • Foreign service exclusion

  • EU-wide service taxation

  • Fostering eco-friendly methods of transportation

Some delegates raised the point that altering VAT rates, such as doing away with the present exemptions on passenger transport, would be a very contentious political and social issue, despite the fact that it had been brought up. Some of the delegates were also concerned about the impact of this on price increases. So, the geographical and social factors of the study would need to be taken very seriously before any changes to the VAT rate are considered.

Policy Considerations Pertaining to Supply-Chain Location Regulations

The majority of those in attendance at the policy discussion agreed that basing the laws governing the provision of passenger transportation services on either the country of departure or the country of destination would be the most convenient option. Still, it was also said that these two strategies might not always result in a fair way to share tax burdens.

In addition, the majority of the delegates present agreed that the policy package designed to simplify legal procedures was a solid foundation from which to build. Several delegates brought up the need for more specific rules about where services are provided and how exclusions are defined while they were talking about passenger transportation services.

Even though most delegates support changes to the VAT rules, some have proposed a grace period for transportation businesses to adapt to the new regulations. Before a decision can be made, it was also agreed that more research and discussion inside the group are needed.

Taxation on Services Provided: The Unique VAT Arrangement for Travel Agencies

Due to anomalies in the present standards, the Commission has identified four areas where legal action is warranted. There are a variety of approaches available for each domain.

  • Special VAT scheme for travel agents

  • Rules on place of supply

  • Conceptual clarifications

  • The margin calculation

The delegates were pleased with the way things were going with the TOMS program for travel agencies, and voiced their approval during the conference. They emphasized how the TOMS plan helps bring in money for the member states and how easy it is for travel agencies to implement. As a result, most attendees were receptive to the idea of keeping the framework of the TOMS plan in place.

The delegates did agree, though, that the current TOMS program needs to be changed to level the playing field for travel agencies and make sure that the rules are followed the same way in all Member States.

System for Refunding Value-added Tax to Visitors and Duty-Free Stores

While talking about the way non-EU travelers can get their VAT back, many delegates pushed for the digital systems of Member States to work together.

Some delegates also endorsed the notion of digitalizing VAT refund mechanisms. However, there were many who favored keeping things as they were. Most delegates agreed that a centralized data repository and complete harmonization of national systems were the best options for member states without a digital refund system. However, before adopting such changes, the Commission should weigh the costs and benefits.

Last but not least, a few pieces of information were shared before the conference ended, including the most recent developments in the application of value-added tax to online purchases.

A Recent Development in Electronic Commerce Taxation

The new VAT regulations for online trade have been in place for almost a year, and the Commission services have just revised them. They applauded the sustained work of member states to strictly adhere to these regulations. They were able to achieve their goals of more equitable taxes and streamlined corporate operations, as shown by an assessment done six months following implementation. However, there were several problems with the IT installation, as noted by the Commission Services. All states must completely adopt these regulations in order for the system to stabilize, the Commission Services emphasized.

Expert Guidance Through the Latest VAT Changes

Wondering what the implications of these talks could be for your future VAT treatment? The good news is that you don't have to take any chances if you want straightforward and efficient VAT. Contact our staff immediately to set yourself up for self-assurance and VAT compliance.

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