Germany announcement re VAT policy for non-EU travel businesses
As you will be aware, one of the Brexit VAT issues that has not been resolved is the possible need to register to pay local VAT in EU member states. We have just found out that Germany has just announced its position on this.
As you know, under the new UK version of TOMS, the margin made on EU destinations is now zero rated. However, it has never been clear what the position might be in the member state where the package takes place and whether local registration is required. Germany announced on 29 January that third country businesses should not be seen to fall within TOMS. This means that the “normal” VAT rules should be applied and therefore the payment of German VAT on services enjoyed in Germany. This represents a new policy and is effective from 1 January this year (no doubt influenced by Brexit). This applies equally to B2C and B2B transactions.
It is important that this is just the opinion of the tax authorities – it is not based on a change in the law or on new case law. The position under the EU VAT Directive remains ambiguous. Nevertheless, it is now quite possible that the German authorities will start to approach UK (and other third country) businesses to seek their registration.
As far as we’re aware, Germany is the first member state to express a view on this, but of course it is quite possible that others will now follow Germany’s lead. We suspect that Germany’s action will be influential. The backdating of obligations cannot be ruled out.
Normal VAT in any member state is likely to mean the payment of VAT at the appropriate local rate(s) on the selling price of the holiday etc and the recovery of the local input VAT charged by hotels, attractions etc. It would therefore be prudent to assume that VAT will be due when setting prices. It is also important to check that EU suppliers are issuing qualifying VAT invoices to support the recovery of the input VAT should they be needed at a later date (although please be aware some suppliers may not issue VAT invoices because, for example, they have to account for VAT under TOMS or are just not VAT-registered).
Whilst this is not good news for many, it should be noted that the new German position can be helpful for TMCs and event agencies selling German services to business clients and possibly also for wholesale suppliers in some circumstances.
As you will remember, ABTA contributed to last year’s EU consultation on the reform of TOMS and put forward options to avoid this situation. However it is likely to be a few years before any TOMS reforms are made (if any).
If you have more detailed questions in relation to this, please feel free to contact David Bennett on our VAT helpline.