The European Court of Justice (ECJ) recently ruled on the infringement proceedings in relation to the operation of the Tour Operators Margin Scheme (TOMS) on wholesale supplies in the EU. Wholesale supplies relate to business to business supplies, with the customer typically packaging them with other supplies and selling them onto the final consumer. Whilst it specifically refers to eight Member States; Spain, Portugal, France, Italy, Greece, Poland, Czech Republic, Finland the decision will impact all EU member states.
The proceedings related to whether or not TOMS would apply where travel services are supplied from one tour operator to another tour operator on a wholesale basis. The eight member states in question determined that TOMS applies equally to wholesale supplies as to retail sales. The commission disagreed and stated that wholesale supplies should follow the normal B2B rules – the UK also follows this position. The court ruled in favour of the eight Member States, stating that TOMS was not limited to retail sales only and the Member States in question should continue to treat wholesale supplies as TOMS supplies.
The impact for the UK and other EU Member States may be significant as tour operators will have to apply the TOMS rules to wholesalers selling travel services consumed in the EU. This is of particular relevance to UK tour operators that use HMRC’s ‘Transport Company Scheme’ whereby businesses purchase the passenger transport element of a travel package through a separate but affiliated company. This separate company applies a mark-up to the wholesale, zero-rated supply of passenger transport to the tour operator, allowing the operator to reduce its margin and the VAT due. The decision of the Court will likely mean that this scheme will no longer be permitted and as a result, affect the profit margin made by travel companies.
At this stage HMRC has not published any material on the impact of these proceedings or the timeframe for any implementation of this treatment. Clearly, HMRC and the other tax authorities around the EU will also need to consider the impact of tour operators switching their wholesale business to a non-EU establishment, as the TOMS rules will not apply to non-EU establishments.
We will provide further updates as they become available.