It will now be up to the European Court of Justice to decide the way in which the special margin taxation scheme for travel agents has to be applied. However, the decision of the Court will be based on a legislation that dates from 1977 and which does not take account of the technological evolution and changes in the travel supply chain.

The industry would have preferred if the Member States had reached agreement on a proposal of the European Commission to revise the travel agents’ VAT scheme. ECTAA and GEBTA have strongly supported the Commission’s proposal presented in 2002, which aimed at simplification, modernisation and a more uniform application of the Community provisions. One of the core elements of the proposal was an opt-out provision for supplies to taxable persons where the services are used for business purposes. This is essential if travel agents are to compete effectively with direct sales of travel service suppliers, whose clients can deduct input VAT under the normal VAT arrangements and benefit from reduced VAT rating or VAT exemption. Such an opt-out also exists in the margin scheme for second-hand goods. Regretfully, Member States do not seem to share this view and prefer to extend the scope to all supplies of travel agents.

Said President of ECTAA, Ms. Irena GUEORGUIEVA: “Time is up. Member States have to seize this last opportunity to thoroughly revise the margin taxation scheme. But we must ensure that we do not replace the old scheme with a new one, which would perpetuate the distortions of competition that are inherent in the current arrangements.”