EU: Commission refers Germany to Court over VAT rules for travel agents

Michael Wukoschitz's picture

The European Commission has decided to refer Germany to the Court of Justice of the European Union for its failure to properly apply the special value added tax (VAT) scheme for travel agents, as provided for in the VAT Directive (Council Directive 2006/112/EC). The scheme aims to simplify and amend the VAT rules applicable to travel agencies selling travel packages within the EU. It is obligatory for all travel agents to apply the scheme, provided the conditions required in the Directive are met. This stipulates that travel agents must set their profit margin (the difference between the actual cost to the agent and the total amount to be paid by the traveller, exclusive of VAT) as the taxable amount of VAT. The aim of this rule is to create a level playing field for providers and to eliminate distortions of competition. The European Commission sent a reasoned opinion to the German authorities on 24 September 2015. As Germany has failed to bring its legislation in line with EU law, the European Commission has decided to refer Germany to the Court of Justice of the EU.

Furthermore, the European Commission formally requested Germany to amend its VAT rules on cross-border road passenger transport. Germany currently applies VAT rules that treat short cross-border passenger transport services (less than 10km) as a foreign service for tax purposes, meaning that these services are not taxable in Germany. According to EU law, passenger transport services must be taxed where the transport takes place and must be proportionate to the distances covered. For example, a cross-border bus service that takes place partially in Member State A and partially in Member State B must be taxable in Member State A for the distance travelled there, and in Member State B for the rest of the distance travelled. The rule applied in Germany is not allowed under the VAT Directive (Council Directive 2006/112/EC) and cannot be considered as a simplification measure since it is not intended to simplify the collection of the VAT, but rather not to collect VAT at all. The Commission's request takes the form of a reasoned opinion. In the absence of a satisfactory response within two months, the Commission may refer Germany to the Court of Justice of the European Union.

Source: European Commission - Fact Sheet: The April Infringements' package <http://europa.eu/rapid/press-release_MEMO-16-1452_en.htm>

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