Tour operators in the Republic of Ireland are being brought under the Tour Operators Margin Scheme (TOMS). The move brings Ireland into line with European Union regulations on the taxation of package tours. Tour operators and travel agents in Ireland have until now been exempt from paying such VAT. Ireland and Denmark are the only EU member states that do not yet operate a Margin scheme for VAT in the travel industry. Under a clause in the Republic's 2009 Finance Act, they and travel agents will come under the TOMS regime on 1st January 2010. Under the new scheme tour operators will be subject to VAT on the gross margin on package holidays sold to consumers.
 
The margin scheme was introduced by the European Commission in 1977 to simplify the collection of VAT on tours that went to several EU countries. Operators were not forced to register for VAT in each country: this becomes irrecoverable. Under the TOMS arrangement tour operators only have to register and account for VAT in their home country.  VAT is then applied to the margin between the gross costs and the price paid by the consumer. VAT incurred on general overhead expenses is recoverable.
 
The VAT rate in the Republic of Ireland was raised to 21.5 per cent in December 2008, so the ability to register for VAT and recover sums paid in business expenses has some advantages for the travel trade. But the imposition of VAT on the gross margin has severe implications for any Irish operator selling their services outside the EU. As it is applied to the price paid by the consumer, it taxes all sales (and costs of sales) throughout the world.
 
The European Tour Operators Association has long campaigned for reform of TOMS because it has anomalies and inconsistencies that have been highlighted by developments in the travel industry over the past 20 years. ETOA says that EU-based operators are disadvantaged because VAT is not collected from operators based outside the EU.