Subject: Detailed briefing on the CJEU’s ruling in C.sp. zo.o. (C-108/22) concerning the Special VAT Scheme for Travel Agents, drawing from “CJEU VAT Ruling: Travel Agents’ Special Scheme Guide,” “CJEU decision emphasises need for harmonisation of the special VAT scheme for travel agents | International Tax Review,” and “CURIA – Documents.”
1. Executive Summary
The Court of Justice of the European Union (CJEU) issued a pivotal judgment in C.sp. zo.o. (C-108/22) on June 29, 2023, providing critical clarity on the application of the special VAT scheme for travel agents (also known as the Tour Operators’ Margin Scheme or TOMS) under Articles 306-310 of the VAT Directive (2006/112/EC). This ruling affirms that the scheme applies even to the mere resale of single accommodation services by a “hotel services consolidator,” explicitly rejecting the requirement for a “complex service” or a “bundle of several supplies.” While offering clarity for many operators, the decision is poised to create controversy in EU member states with stricter national interpretations. It also strongly underscores the urgent and ongoing need for the harmonisation of the special VAT scheme at the EU level, particularly regarding its scope and place of supply rules, which currently disadvantage EU operators.
2. Background of the Special VAT Scheme (TOMS)
The special VAT scheme for travel agents was introduced to mitigate the “practical difficulties” that would arise if the normal VAT rules applied to the complex operations of travel businesses. As the CJEU noted, applying general place of supply rules would mean travel agents “would have to pay VAT in different member states for each component of their services (e.g., accommodation, transport, events), which would make VAT management practically impossible and unmanageable for these businesses.”
Under TOMS, VAT is calculated on the travel agent’s “margin,” which is the difference between the total amount paid by the customer and the actual cost of supplies from other taxable persons for the direct benefit of the traveler. This contrasts with the normal VAT regime, where VAT is applied to the full selling price of each individual service. The scheme is governed by Articles 306-310 of the VAT Directive, with Article 306(1) stating that it applies 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.”
3. The C.sp. zo.o. Case (C-108/22)
3.1 Parties Involved and Business Nature
The dispute involved C. sp. z o.o., a Polish entity operating as a “hotel services consolidator,” and the Dyrektor Krajowej Informacji Skarbowej (Director of the National Tax Information Service, Poland), referred to as the tax authority. C. sp. z o.o. did not own accommodation facilities; instead, it “purchases accommodation services in its own name from other VAT-taxable persons and then resells them to its commercial customers.” Although it occasionally provided ancillary services like consultancy, its core business was the “mere resale of accommodation only.”
3.2 The Disputed Point
The central disagreement was whether C. sp. z o.o.’s activity, primarily the resale of single accommodation services, qualified for the special VAT scheme. The Polish tax authority argued that for a service to be considered a “tourist service” eligible for the special scheme, it “had to be a ‘complex service’ made up of a number of external and internal services,” contending that “a mere resale of accommodation did not meet this complexity requirement.”
The Polish Supreme Administrative Court (Naczelny Sąd Administracyjny) referred the question to the CJEU due to uncertainty, acknowledging prior CJEU case law suggesting that the special scheme could apply to accommodation services sold without ancillary services, even if not complex.
4. The CJEU’s Ruling and Reasoning
4.1 Date of Judgment
The CJEU’s judgment was delivered on June 29, 2023.
4.2 Key Interpretation of Article 306 and the “Complexity” Requirement
The CJEU explicitly rejected the Polish tax authority’s argument that a “complex service” or “bundle of several supplies” is a prerequisite for applying the special scheme. The Court held that “Article 306 of the VAT Directive must be interpreted as meaning that the service provided by a taxable person, which consists in purchasing accommodation services from other taxable persons and reselling them to other economic operators, is covered by the special VAT scheme applicable to travel agents, even though those services are not accompanied by ancillary services.”
The CJEU reasoned that “excluding services solely because they cover only accommodation would lead to a complicated tax system that fails to comply with the directive’s aims.” This stance reinforces the scheme’s original purpose: “avoid[ing] the practical difficulties of VAT management that would arise if the normal VAT rules applied to transactions involving multiple services bought from third parties in different locations.” The Court noted that even a “mere resale of geographically diverse hotel accommodations presents the same complexities for VAT calculation across different member states as more bundled travel services.”
4.3 Principle of Neutrality and Prior Case Law
The ruling aligns with the principle of neutrality in VAT, which aims to ensure that “similar goods and services bear the same tax burden, regardless of the length of the production and distribution chain.” The CJEU stated that “if the resale of single accommodation services were taxed under general VAT rules while more complex services (including accommodation) were taxed under the special scheme, it would create an inconsistent tax burden for similar activities, thus infringing the principle of neutrality.”
The CJEU’s decision was consistent with its prior judgment in Alpenchalets Resorts (C‑552/17, EU:C:2018:1032), which had already established that “the mere supply of holiday accommodation by a travel agent is sufficient for the special scheme to apply.” This precedent was crucial in supporting the Court’s current interpretation that the importance of other supplies or the “complexity” of the service does not affect its eligibility for the special scheme.
5. Implications and Future Outlook
5.1 Clarity vs. Controversy
The CJEU’s ruling provides significant clarity for “hotel services consolidators” and other entities primarily reselling accommodation, confirming their eligibility for TOMS. However, it is “likely to have created controversy in certain member states where, in order to be able to apply the special scheme for travel agents, there is a requirement to be dealing with a truly complex service.” Spain is cited as an example, where national VAT regulations require “travel” to mean “accommodation or transport services provided jointly or separately and, where appropriate, with other services of an ancillary nature,” making it unclear whether a mere resale of accommodation fits. Such divergences may necessitate legislative adjustments in these member states.
5.2 Ambiguity of “Travel Facilities” and Need for Harmonisation
The case highlights the persistent ambiguity surrounding the term “provision of travel facilities” in the VAT Directive, questioning whether a mere resale of accommodation services falls under this definition. This ambiguity, coupled with the differing national interpretations and the CJEU’s ruling, underscores a “pressing need for revision and harmonisation of the special scheme for travel agents at EU level.”
Key inconsistencies necessitating harmonisation include:
- The unclear scope of the special scheme: “it is not entirely clear to which type of activities it should apply (only travel, congresses, events, etc.).”
- Divergent interpretations among member states on qualifying services.
- Problems with place of supply rules, which currently “seem to benefit third-country operators to the detriment of EU operators.” This creates an “uneven playing field,” as “the current regulation is beneficial to non-EU operators to the detriment of EU companies.”
- The surprising lack of a “common position within the EU on what should be understood by the term ‘travel’.”
This issue has “been on the European Commission’s agenda for some time, but its discussion has been postponed.” The CJEU’s judgment serves as an urgent call for the European Commission to address these inconsistencies, as “every day that goes by without modifying this aspect is a lost opportunity that we cannot afford.”
Disclaimer: This briefing document is based on the provided source materials and does not constitute legal or tax advice.
See also
- Roadtrip through ECJ Cases – Focus on ”TOMS” (Travel Operating Margin Scheme) (Art. 306-310) – VATupdate
- C-108/22 (Dyrektor Krajowej Informacji Skarbowej) – Resale of accommodation services fall under the special scheme for travel agents
- Join the Linkedin Group on ECJ/CJEU/General Court VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
