Skip to main content

ECJ VAT Decisions Released – TOMS to Apply to Wholesalers

By September 26, 2013January 9th, 2024Uncategorized|VAT news

Today saw the release of a landmark European VAT case which will change the way in which travel businesses in many EU Member States account for VAT, potentially increasing the cost of travel in some cases.

The case focused on the special VAT scheme for tour operators (TOMS), questioning whether it should apply in both a retail and  a wholesale environment.  An inconsistent approach is taken by the different Member States currently.

The ECJ has confirmed that wholesale travel transactions should fall within TOMS. This will mean that EU travel wholesalers  will have to account for VAT from the profit margin on sales of EU travel in the country in which they are established.

Previously, wholesalers in EU Member States applying normal VAT rules to wholesaling were effectively able to sell the flight or passenger transport element of an EU package without VAT.  Going forward this will change, with VAT being due from the whole margin. Clearly, once the new VAT rules are rolled out,  this will have an impact on the profitability of travel supply chains, potentially impacting pricing ultimately.

The impact of the decision from a UK perspective could be considerable.  UK travel businesses who currently use the HMRC sanctioned trader to trader (wholesale) option (commonly referred to as ’The VAT Transport Company Scheme’) will no longer benefit from the passenger transport element being VAT free. This is because supplies between  Transport Company (a wholesaler) and its tour operator will now be subject to TOMS, rendering the arrangement ineffective.

For some tour operators the increased VAT cost could be enough to make the business unviable. Where this is the case tour operators will be forced to review their business to determine if they can adopt an alternative model such as relocating the business to a non-EU location (this can take on many forms to suit the commercial circumstances of the business in question, but key is real substance existing overseas). Non EU tour operators selling EU holidays are not currently required to account for any VAT on sales.  Alternatively the business may prefer to continue operating in the UK but under a disclosed agency model or potentially the alternative ‘Agency Option’ which facilitates the use of net rates.

As with all decisions there will be a lead in time for the Member States to enact the changes, and at this early stage it is unclear as to what the precise impact will be for the UK. Therefore, whilst it is business as usual for now from a VAT accounting perspective, those wanting to make a fundamental change will need to put the wheels in motion as soon as possible given the complexity associated with changes to business models.

If you want to find out more regarding the case or if you want to arrange a meeting to discuss your business model then please do not hesitate to contact Julie Park on 01962 735 350 or via email at

Leave a Reply