Indirect Tax News - October 2019

EU infringement proceeding regarding special margin scheme for travel agents

The margin scheme is a special VAT provision for travel agents. It regulates the taxation of travel services a travel agent provides in its own name but are for the account of third parties.

To date, the margin taxation scheme has only been applicable in Austria if tour operators have provided such travel services directly to travellers (business-to-customer (B2C)), but not for travel services provided to business customers (business-to-business (B2B)).

For example, say Travel Agency A sells a journey to Tour Operator B, who supplies this journey to a non-business customer (Customer C). As Tour Operator B is a business customer, the travel services provided by Travel Agency A do not fall under the Austrian taxation of margins scheme. In contrast, the travel services provided by Tour Operator B to Customer C would fall under Austria’s margin scheme for travel agents.

The European Commission is of the view that Austria does not apply the margin scheme for travel agents in accordance with EU law. According to the Commission, the margin scheme applicable to travel agents should be the same whether such services are provided to business customers or to non-business customers (see ECJ case C-380/16, Bundesrepublik Deutschland). Therefore, to avoid unfair competition, on 6 June 2019 the European Commission decided to pursue an infringement proceeding against Austria.

The Austrian legislature has made an amendment of the Austrian VAT Act, but the entry into force was originally postponed to 1 May 2020, and a further postponement to 1 January 2022 is expected. There is strong resistance in the travel industry to the new provision, as it will make services more expensive and tour operators are already operating with low margins.

Michael Huber

Sebastian Lacha