In brief

On 17 February 2021, the European Commission published a Staff Working Document Evaluation on Special Scheme for travel agents, the tour operators margin scheme (TOMS). The special scheme working document ("TOMS working document") outlines two main objectives:

  1. Establish whether the special VAT scheme still meets its original objectives of simplifying the application of VAT rules for travels agents and ensuring the VAT revenue goes to the Member States of consumption.
  2. Establish whether the special VAT scheme meets new challenges and developments in the travel sector, including digitalization and COVID-19.

Key takeaways

The TOMS working document outlines the key areas of uncertainty and inconsistent application of the TOMS regime across the EU and the UK, details the pros and cons of TOMS and suggests that the rules may need a refresh to address distortions and ensure a level playing field for all travel agents operating in the EU market, including those not established within the EU.

The TOMS working document concludes that fiscal recovery is a key item in the EU’s agenda and the reduction of tax obstacles and unnecessary administrative burdens for businesses is key in achieving that objective. Whilst there is no timeframe nor suggestion that the rules will change in the short term, and there is no firm proposal for changes, the TOMS working document is likely to be used as an informative framework for future discussions and amendments for the TOMS regime.


The special VAT scheme for travel agents and tour operators is set out in articles 306 to 310 of the VAT Directive (Council Directive 2006/112/EC). The special VAT scheme was introduced in 1977 to provide a simplification measure allowing travel agents and tour operators to derogate from normal VAT rules on the place of supply, taxable amount, and deduction of input tax due to the complexity and location of the services provided by the travel industry. The simplification measure allows travel agents and tour operators to benefit from taxation at origin by paying VAT on their profit margin in the Member State where they are established. The special VAT scheme is mandatory for Member States and businesses resident in a Member State.

Simplification and even distribution of VAT revenue

The simplification measures requires in-scope travel services to be taxed at origin as a single supply by the travel agents and tour operators. This is achieved through the following:

  • Single Services rule: article 307 of the VAT Directive outlines that if travel agents and tour operators package bought-in services together, this will constitute a single supply of services to the customer.
  • Place of Supply: the single supply of services is taxable under the special scheme in the Member State where the travel agent or tour operator has a fixed establishment and performs the supply of services. The special VAT scheme therefore requires travel agents and tour operators to register for VAT only in the Member State where they are located and avoids the need for registration and compliance with other Member States' VAT regimes where travel services occur.
  • Equal distribution of VAT revenue: VAT is distributed evenly between the jurisdictions of consumption, as the services included in the travel package are taxed in the Member State of destination (by the disallowance of input tax for the travel agents and tour operators) while the margin related to the travel agent’s supply is taxed in the Member State of origin where the travel agent is established. The special scheme working document recognizes the scheme as being successful in distributing VAT revenue fairly among Member States.

Digitalization challenges

Due to digitization and the rise of online booking platforms, non-EU Member State operators are increasingly involved in the supply of travel services to EU consumers. However, the rules have generally been interpreted such that non-EU Member State operators have not been required to pay VAT on their margin, as the supply by them has typically been treated as taking place outside the EU. This has been argued by EU operators to be unequal treatment, as it can place EU operators in a disadvantageous position and has led to reactions by some Member States to seek to exclude non-EU operators from the special scheme. The effect of this is inconsistency in the application of the rules in the EU.

TOMS working document: TOMS scheme in need of an update

It is important to note that the TOMS scheme has not been updated since its introduction in 1977. On its introduction, tour operators operated "brick-and-mortar" stores at which consumers booked their holiday packages. The rise of the internet and travel platforms has resulted in the disappearance of many of these "brick-and-mortar" establishments and the types of business operating as travel agent. The TOMS scheme was not designed for the digital age and this is recognized in the TOMS working document.

The TOMS scheme has also never been uniformly applied between the different Member States, and the rules remain unclear for taxpayers due to this lack of harmonization across the EU. The TOMS working document concludes that it has not only failed to truly simplify the rules of taxation for travel operators, the lack of harmonization may ultimately lead to a distortion of competition, which will affect the proper functioning of the internal market.

There is a strong need for clearer, simpler and more harmonized rules for travel agents, and an update to the TOMS scheme is considered desirable by most stakeholders consulted for the TOMS working document.

Member States and the UK approaches to the special VAT scheme

As noted above, the application of the special VAT scheme has not been applied uniformly between Member States, with the potential to lead to unfair distribution of VAT revenue, double taxation, and competition issues.


Prior to its departure from the EU VAT regime on 31 December 2020, the UK application of TOMS was broadly aligned with EU legislation and case law with respect to the travel supplies covered by the regime (including standalone travel) and the inclusion of supplies to B2B customers. However, it diverged from the EU in excluding wholesale supplies from TOMS (although giving taxpayers an option for inclusion) and with respect to margin calculation and apportionment.

From 1 January 2021, the UK applies its own version of TOMS which provides that the margin made on all non-UK travel is zero rated (i.e. EU travel will be taxed in the same way that non-EU travel was taxed before Brexit). Any changes to EU TOMS arising from the TOMS working document would not be enforceable in the UK, but the UK may be inclined to revisit its policy if upcoming changes negatively impact UK travel agents and UK travelers.

The Netherlands

In the Netherlands, the TOMS-regime has been implemented in the Dutch VAT Act (Wet op de omzetbelasting 1968) and a specific policy decision (Omzetbelasting. Reisbureauregeling). The Dutch regime generally follows the EU rules with one notable exception; qualifying travel agents may also calculate their taxable profit on all costs and income during a tax period instead of on a transaction-by-transaction basis.


Prior to 1 January 2021, the use of the TOMS regime was available for tour operators registered in a non-EU Member State. However, on 1 February 2021, the German Ministry of Finance issued a Decree that tour operators that are not tax resident in an EU Member State may not use the TOMS regime, with retroactive effect to 1 January 2021. The Ministry of Finance based its decision to deny the TOMS regime on an interpretation of the EU VAT Directive, which arguably provides that the travel services, as an exception from the general tax place rules, shall be taxed only in the "Member State" of the tour operator. The Ministry of Finance appears to have concluded that the TOMS-simplification may apply only when an EU Member State ultimately taxes the travel service.

At this point in time, it is not clear whether the Ministry's restrictive understanding of the EU Directive is actually the correct interpretation of the TOMS regime under EU law. This may ultimately need to be clarified by the European Court of Justice in future litigation.


The special scheme working document demonstrates the need for the special VAT provisions in the travel industry and it outlines the success of the original objectives to date; however, since its introduction in 1977, the travel industry has faced many challenges, including digitalization and COVID-19, demonstrating the need for amendments to the special VAT scheme. An updated scheme, which takes into account the new economic reality of an increasingly digitalized world is highly desirable.