Travel services
There are special VAT rules for travel services in the EU. In Germany, these can be found in section 25 German VAT Act. Taxation under section 25 German VAT Act applies to travel services provided by a business if the business acts in its own name vis-à-vis the recipient of the service and receives travel services. Travel services are deemed to have been provided at the place where the service provider is established. The margin scheme applies and input VAT deduction from received travel services is excluded.
The special rule does not apply to travel services provided by taxable persons who are established in a third country and do not have a permanent establishment in the EU.
Intended simplification
The special rule for travel services is meant to make things simpler. It is supposed simplify matters because travel agencies and tour operators usually offer a whole package of different services, which they often buy from other companies. Viewed individually, all these services would be taxed differently. In order to reduce this complexity somewhat, section 25 German VAT Act stipulates that travel agencies and tour operators provide uniform services.
In practice, however, section 25 German VAT Act does not always serve its purpose of simplification. This is because the regulation applies not only to traditional tour operators, but also, for example, to intra-group service charges. In particular, the correct calculation of the margin regularly poses major challenges for the companies concerned.
What is a travel service?
A travel service is generally only deemed to exist if the taxable person provides a bundle of individual services that includes at least one transport or accommodation service. Possible components of a travel service may include, for example, the transport, accommodation, or catering of the traveler. A single service may be subject to section 25 German VAT Act if the service is an accommodation service (e.g., the resale of hotel contingents ). According to the ECJ, the special rule for travel services also applies if a travel agency only sells a transportation service
See VAT Newsletter 29/2023: ECJ: Resale of hotel contingents falls under the Tour Operator Margin Scheme
VAT Newsletter 23/2023: ECJ on letting of a building including operating equipment: Precedence of single supply over splitting requirement
Received travel services
Taxation pursuant to section 25 German VAT Act only applies if the taxable also receives travel services. Received travel services are all services provided by a third party that directly benefit the traveler. However, services provided by the taxable persons themselves are subject to the general provisions of the German VAT Act.
Calculation of margin
Notwithstanding section 10 German VAT Act, only the margin is subject to VAT for travel services. The margin is the difference between the amount paid by the recipient of the service and the taxable person’s expenses for the travel services, less VAT. As a rule, this is based on individual trips. This does not apply if the taxable person uses a uniform surcharge or calculation rate. In this case, for reasons of simplification, the tax authorities do not object to combining several trips for the purpose of calculating the margin and forming a total margin.
How can I avoid the special rules for travel services?
The special rule for travel services can be avoided by switching to an intermediary model. The question of whether an intermediation service exists is determined by civil law. An intermediation service only exists if the intermediary has clearly concluded the transaction on behalf of the principal. It must therefore be objectively apparent to the recipient of the service that the taxable person intends to act on behalf of another party in concluding the transaction. As a rule, this must be made clear in the brochure design and by means of clear references outside the general terms and conditions.
See VAT Newsletter 29/2023: ECJ: Resale of hotel contingents falls under the Tour Operator Margin Scheme
Accommodation services
Apportionment requirement for supplies of accommodation services
The supply of short-term accommodation services, such as hotel accommodation, is subject to the reduced VAT rate in accordance with section 12 para. 2 no. 11 sentence 1 German VAT Act. The reduced VAT rate does not apply to the supply of ancillary services that do not directly serve the purpose of accommodation (section 12 para. 2 no. 11 sentence 2 German VAT Act). The tax authorities have listed examples of those supplies, which are not deemed to be directly related to accommodation. The apportionment requirement applies in particular to services such as breakfast, parking, wellness offers, and Wi-Fi.
Doubts about the lawfulness of the apportionment requirement
The lawfulness of the national apportionment requirement has been the subject of intense debate in recent years. The discussion was triggered by the ECJ judgment of 18 January 2018 in the case Stadion Amsterdam CV (C-463/16). Here, the ECJ ruled that a single supply may not be split up, with the result being that both the standard VAT rate and the reduced VAT rate apply.
See VAT Newsletter 04/2018: ECJ: No different VAT rates for a single supply
ECJ referrals on the apportionment requirement
In its decisions of January 10, 2024, the XI Senate of the Federal Fiscal Court referred the question to the ECJ as to whether the apportionment requirement of sec. 12 para. 2 no. 11 sentence 2 German VAT Act is contrary to Union law if it excludes these dependent ancillary services from the reduced VAT rate for supplies of accommodation services in accordance with sec. 12 para. 2 no. 11 sentence 1 German VAT Act. In the three cases, the hotels and guesthouses offered their customers, in addition to overnight accommodation, the free use of other additional services, such as the use of car parks, breakfast, fitness and wellness facilities and the hotel’s own Wi-Fi. This means that the apportionment requirement for the supply of accommodation services is put to the test by the ECJ.
See VAT Newsletter 28/2024: Will the ECJ overturn the apportionment requirement for supplies of accommodation services?
