Flashback on ECJ Cases C-380/16 (Commission v Germany) – Exclusion of travel services sold to other businesses from the TOMS is not compatible with VAT law

On February 8, 2018, the ECJ issued its decision in the case C-380/16 (Commission v Germany). This case dealt with the application of the Travel Operating Margin Scheme (TOMS).

Context: Failure to fulfill obligations – Taxation – Value added tax (VAT) – Directive 2006/112 / EC – Article 73 – Tax base – Articles 306 to 310 – Special regime for travel agencies – Exclusion from this sales regime to liable companies – Global determination of the tax base for a given period – Incompatibility

Article in the EU VAT Directive

Article 73 and Articles 306 to 310 of the EU VAT Directive 2006/112/EU.

Article 73

Article 73 (Taxable Amount)

In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Articles 306-310 (Special Scheme for Travel Agents)

Article 306
1. Member States shall apply a special VAT scheme, in accordance with this Chapter, to transactions carried out by travel agents who deal with customers in their own name and use supplies of goods or services provided by other taxable persons, in the provision of travel facilities.
This special scheme shall not apply to travel agents where they act solely as intermediaries and to whom point (c) of the first paragraph of Article 79 applies for the purposes of calculating the taxable amount.
2. For the purposes of this Chapter, tour operators shall be regarded as travel agents.

Article 307
Transactions made, in accordance with the conditions laid down in Article 306, by the travel agent in respect of a journey shall be regarded as a single service supplied by the travel agent to the traveller.
The single service shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has carried out the supply of services.

Article 308
The taxable amount and the price exclusive of VAT, within the meaning of point (8) of Article 226, in respect of the single service provided by the travel agent shall be the travel agent’s margin, that is to say, the difference between the total amount, exclusive of VAT, to be paid by the traveller and the actual cost to the travel agent of supplies of goods or services provided by other taxable persons, where those transactions are for the direct benefit of the traveller.

Article 309
If transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the Community, the supply of services carried out by the travel agent shall be treated as an intermediary activity exempted pursuant to Article 153.
If the transactions are performed both inside and outside the Community, only that part of the travel agent’s service relating to transactions outside the Community may be exempted.

Article 310
VAT charged to the travel agent by other taxable persons in respect of transactions which are referred to in Article 307 and which are for the direct benefit of the traveller shall not be deductible or refundable in any Member State

Facts/Questions

The applicant submits that the scheme laid down in Germany for the calculation of value added tax on travel services is not consistent with Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax. ¹ That directive provides, in Articles 306 to 310, a special scheme under which the travel services provided by a travel agent to a customer are to be treated as a single service. German law unlawfully departs from that scheme.

First, it is not permitted to exclude taxable persons who use travel services for their business from the application of the special scheme. The Court has already ruled in its judgment of 26 September 2013 in Case C-189/11, ² Commission v Spain, that the special scheme must be applied not only to services provided to private final consumers but also to services provided to taxable traders. It is not open to the Member States to restrict the application of that scheme solely to the former category.

Second, the method of calculation provided for under the German law on turnover tax is incompatible with Directive 2006/112/EC. Pursuant to Article 73 and Articles 306 to 310 of that directive, the taxable amount must be determined separately for each journey. German law, by contrast, permits a flat-rate calculation of the profit margin for ‘groups of services’ or for all journeys within a specified period of time. The Court also held in the abovementioned judgment that a flat-rate calculation of that kind is not consistent with the common system of value added tax.

AG Opinion

None

Decision

1. The Federal Republic of Germany has violated its obligations under Article 73 and Articles 306 to 310 of Council Directive 2006/112/EC of November 28, 2006 on the common VAT system by providing travel services to taxpayers which they use for their business, excludes them from the special VAT regulation for travel agencies and by allowing travel agencies, insofar as this special regulation is applicable to them, to determine the VAT assessment base for groups of services or for all services provided within a taxation period.

2. The Federal Republic of Germany is ordered to pay the costs.

Source