ECJ C-565/24 (P-GmbH & Co. KG) – Judgment – VAT Margin Scheme Applies to “Coffee Trips,” No Refund for Negative Margin

On September 10, 2026, the ECJ issued the Judgment in the case C-565/24 (P-GmbH & Co. KG).

Context: Reference for a preliminary ruling – Taxation – Common system of value added tax – Directive 77/388/EEC – Article 17 – Right to deduct input tax due or paid – Article 26 – Special scheme for travel agents – Scope – Excursions combined with sale of goods – Margin taxation – Negative margin – No right to deduct

Summary

Facts: P-GmbH & Co. KG organized “coffee trips” (excursions combined with sales events) where the fee for transport services did not fully cover costs. The deficit was financed by revenue from goods sold during the trip, which were not mandatory purchases for participants. P-GmbH initially deducted input VAT on transport costs but the tax authority later challenged this, arguing the special scheme for travel agents (Article 26 of the Sixth Directive) should apply.
Issue: Do excursions that systematically generate a negative margin, covered by sales of goods, fall under the special VAT scheme for travel agents, and if so, does a negative margin entitle the taxable person to a VAT refund?
Decision: The Court ruled that the special scheme for travel agents (Article 26 of the Sixth Directive) does apply to such excursions. However, it does not confer a right to a refund of input VAT when the margin is negative.
Argumentation (Application of Article 26):
- The scheme applies to traders organizing travel in their own name using third-party services, even if not formally travel agents.
- The excursions have characteristics of travel services and were offered in P’s name, making them comparable to services by travel agents.
- The travel services are not purely ancillary to the goods sales, as they have a distinct purpose for consumers (an end in themselves, not just a means to enjoy sales).
- The systematic negative margin and financing from goods sales do not preclude the application of the special scheme, nor does the principle of fiscal neutrality override this specific derogation.
Argumentation (No VAT Refund for Negative Margin):
- Article 26(2) and (4) do not provide for a right to a refund of input VAT for negative margins.
- Granting a refund for negative margins would be incompatible with the objective of fair distribution of VAT revenue among Member States (especially for cross-border services) and the prohibition against calculating the margin on an overall basis.
- P-GmbH freely chose its business model with knowledge of the services’ structurally loss-making nature.

Articles in the EU VAT Directive

Article 306 in the EU VAT Directive 2006/112/EC.

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.

Facts

The discussion between the tax authorities and the taxpayer involves the treatment of VAT on excursions organized by the taxpayer, P-GmbH & Co. KG, from 1997 to 1999. These excursions, known as “Kaffeefahrten,” were promotional trips aimed at selling goods to participants. The taxpayer collected fares from participants, but the bus costs exceeded these fares, resulting in a negative margin.

Key points of contention include:

VAT Treatment of Excursions: The taxpayer argues for a full VAT deduction on bus costs, claiming these costs are directly related to the taxable excursions. The tax authorities, however, have denied the full deduction, treating the bus services as part of a broader promotional activity not entirely subject to VAT deduction.
Application of Special Scheme for Travel Agencies: The case questions whether these excursions fall under the special VAT scheme for travel agencies, which could affect how the VAT is calculated, especially given the negative margin.
Negative Margin Implications: The authorities and the taxpayer debate whether a negative margin should lead to a VAT refund or adjustment, as under normal VAT rules, a positive margin is typically expected.

The case has been referred to the ECJ to clarify how EU VAT directives apply in this context, particularly concerning the special travel agency scheme and the handling of negative margins.

Questions

Does an “excursion organized by a trader outside their business premises” as per Article 1(1) of Directive 85/577/EEC qualify as “services provided by a travel agency in the course of a journey” under Article 26(2) of Directive 77/388/EEC?
If the first question is affirmed: Should the special scheme for travel agencies under Article 26 of Directive 77/388/EEC be applied even when the margin, which serves as the taxable base under Article 26(2)(3) of the Directive, is negative because the actual costs exceed the “total amount without VAT” paid by the traveler?
If both the first and second questions are affirmed: Is Article 12(1) of Directive 77/388/EEC applicable to the margin considered as the taxable base under Article 26(2)(3) of the Directive, even if the margin is negative, resulting in a refund to the taxpayer?

AG Opinion

Article 26 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment

must be interpreted as not applying to a situation in which a taxable person purchases tourist services, in particular transportation services, from other taxable persons and subsequently provides them in its own name within the framework of excursions combined with the supply of goods, the purchase of which is not a condition for participation in the excursion, with the taxable person charging participants a fee that does not cover the entire cost of the services purchased from other taxable persons, and the remainder of that cost being covered by revenue from the supply of goods, thus becoming a component of the price of those goods.

Decision

1. Article 26 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment

must be interpreted as applying to a situation in which a taxable person purchases tourist services from third parties, in particular transport services, in order to sell them in his or her own name to consumers in the form of excursions, where the fee received in that respect does not cover all the costs of those services and the remainder of those costs is financed by the revenue from the sale of goods that that taxable person offers to those consumers during those excursions.

2. The first sentence of Article 12(1) and the third sentence of Article 26(2) of the Directive 77/388

must be interpreted as not conferring on the taxable person any right to a refund of input value added tax where the margin of a single supply is negative.

Source

Curia

Similar ECJ Cases

Travel Vac Case (C-423/97): This case involved criteria for defining excursions organized outside business premises, relevant for interpreting the directives in question.
IST Case (C-200/04): This case discussed the application of the special VAT scheme for travel agencies, particularly regarding linguistic trips, which are analogous in terms of determining the scope of the VAT scheme.
Madgett and Baldwin Case (C-308/96 and C-94/97): These cases examined whether activities not traditionally considered travel agency services could fall under the special VAT scheme.
Skarpa Travel Case (C-422/17): This case provided insights into how the VAT scheme for travel agencies is not an independent tax system but integrates with the general VAT rules, except for specific deviations.
Minerva Kulturreisen Case (C-31/10): This case emphasized that the special VAT scheme should only apply as far as necessary to achieve the directive’s objectives.
Commission/Spain (C-189/11): This case discussed the distribution of VAT revenues among member states under the special travel agency scheme.
Commission/Germany (C-380/16): It addressed how the special scheme simplifies VAT by considering the travel agency’s margin as the taxable base.
First Choice Holidays (C-149/01): This case focused on the simplification of VAT deduction processes for travel agencies.
Bogu Case (C-497/09): This case dealt with distinguishing between different types of services for VAT purposes.
Star Coaches (C-220/11): It examined what constitutes a travel service under the VAT scheme.
Generali Seguros (C-42/22): This case considered the principle of tax neutrality in the interpretation of VAT rules.
Commission/Austria (C-787/19): This case addressed issues related to the interpretation of the VAT margin scheme.

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Case Reference: Judgment of the Court (Second Chamber) in Case C‑565/24, P-GmbH & Co. KG v Finanzamt Q, 10 September 2026.

Subject Matter: Interpretation of Article 26 of the Sixth VAT Directive concerning the special scheme for travel agents, specifically its applicability to “coffee trips” (Kaffeefahrten) where the travel service systematically generates a negative margin, and the implications for VAT refunds.

1. Key Facts of the Case

P-GmbH & Co. KG (P) is a German company that organized “excursions combined with the sale of goods,” commonly known as “coffee trips” (Kaffeefahrten), between 1997 and 1999.
During these trips, participants were transported by coach to tourist sites, provided a meal, and invited to sales events where P offered goods. Purchase of goods was not mandatory.
P purchased transport and other services from third parties and offered them in its own name to participants.
The fee paid by participants for the excursion did not fully cover P’s costs for these services (e.g., transport). The remainder of these costs was covered by revenue from the sale of goods. P also offered free trips where all costs were covered by goods sales.
Initially, P applied general VAT rules and deducted all input VAT paid on purchased services.
Following tax audits, the German tax authority (Finanzamt Q) and subsequently the Niedersächsisches Finanzgericht ruled that the excursion services fell under the special VAT scheme for travel agents (Article 26 of the Sixth Directive). This meant P could not deduct the input VAT paid on these services.
P appealed to the Bundesfinanzhof (Federal Fiscal Court, Germany), which referred three questions to the CJEU. The core uncertainty was whether Article 26 applied despite the systematically negative margin on the travel component, and what the VAT implications of such a negative margin would be.

2. Legal Background

The ruling primarily interprets Article 26 of Sixth Council Directive 77/388/EEC (the “Sixth Directive”), which established a “Special scheme for travel agents.”

Article 26(1): Applies VAT to travel agents dealing with customers in their own name and using supplies/services from other taxable persons. It clarifies that “travel agents include tour operators.”
Article 26(2): States that all transactions by the travel agent for a journey are treated as a “single service” to the traveller. The taxable amount is the “travel agent’s margin,” defined as “the difference between the total amount to be paid by the traveller, exclusive of value added tax, and the actual cost to the travel agent of supplies and services provided by other taxable persons where these transactions are for the direct benefit of the traveller.”
Article 26(4): Crucially, states that “VAT charged to the travel agent by other taxable persons on the transactions described in paragraph 2… shall not be eligible for deduction or refund in any Member State.”
Article 12(1): Concerns the rate applicable to taxable transactions.

The ruling also references Council Directive 85/577/EEC on consumer protection for contracts negotiated away from business premises, which applies to contracts concluded “during an excursion organised by the trader away from his business premises.”

3. Questions Referred to the CJEU

The Bundesfinanzhof referred three questions, essentially asking:

Scope of Article 26: Do “coffee trips” (excursions organized away from business premises) fall under the special scheme for travel agents?
Negative Margin and Applicability: Is the special scheme applicable even if the calculated margin (as per Article 26(2)) is negative because costs exceed the amount paid by the traveller?
VAT Refund for Negative Margin: If the scheme applies with a negative margin, does this lead to a right to a refund of input VAT for the taxable person?

4. Court’s Main Findings and Reasoning

The CJEU examined the first and second questions together, then the third.

4.1. Applicability of the Special Scheme (Q1 & Q2)

The Court found that Article 26 of the Sixth Directive does apply to situations like P’s “coffee trips,” even if the travel component generates a negative margin.

Broad Interpretation of “Travel Agent”: The special scheme applies to traders who “organise travel or tour packages in their own name and entrust other taxable persons with the supply of the services generally associated with that kind of activity, even if they are not, formally speaking, travel agents or tour operators.” (para 13). This is because identical or comparable services should not be treated differently based on the formal classification of the trader (para 16). P’s transactions, involving purchased transport resold in its own name, bear “similarities to the transactions carried out by travel agents or tour operators” (para 18).
Purpose of the Special Scheme: The scheme aims to simplify VAT rules for multi-service travel activities, which would otherwise present “practical difficulties” under normal VAT rules, and applies even to supplies within a single Member State (paras 14-15).
Ancillary vs. Principal Services: The excursions are not merely “purely ancillary services” to the sale of goods. The Court observed that “for customers, the coach excursion may constitute an end in itself and not merely the means of better enjoying the offer for sale of goods.” (para 22). The fact that the payment received for the transport service covered “on average 60% of the cost of that service” supported this. Therefore, the “links between those services and the supply of goods are not such as to preclude the application… of the special scheme” (para 23).
Impact of Negative Margin: The Court explicitly stated that the “fact that the revenue from those services systematically generated a negative margin… cannot affect that assessment” (para 23).
Principle of Fiscal Neutrality: This principle, while fundamental, is an “interpretive principle,” not a rule of primary law. It “cannot run counter to a derogation expressly provided for by that legislature and undermine its effectiveness” (para 27). Article 26 is a specific derogation. The “Community legislature did not intend to restrict the scope of Article 26… on the basis of the objective of the travel or the results of the transactions concerned.” (para 28). The application of the scheme to loss-making travel services and the resulting inability to deduct input VAT is “the very consequence of the conditions for the application of Article 26” (para 29).
Administrative Burden: Requiring tax authorities to “carry out inquiries to determine the intention of the taxable person and the results of the transactions concerned would be contrary to the objectives of the special VAT scheme” (para 30).

Conclusion on Q1 & Q2: Article 26 of the Sixth Directive applies to “coffee trips” where a taxable person sells purchased tourist services (like transport) in their own name, even if the fee for these services does not cover costs and the remainder is financed by goods sales.

4.2. No VAT Refund for Negative Margin (Q3)

The Court ruled that the Sixth Directive does not confer a right to a refund of input VAT when the margin for a single supply is negative.

Explicit Prohibition on Deduction/Refund: Article 26(4) clearly states that input VAT charged to the travel agent for services “for the direct benefit of the traveller, shall not be eligible for deduction or refund in any Member State.” (para 36).
Consequence of the Scheme: The fact that the margin is negative and input costs are not fully covered is simply “the consequence of the conditions for application of Article 26 of the Sixth Directive.” (para 40).
Objective of Fair Distribution: Granting refunds for negative margins would undermine the objective of “fair distribution of the revenue from the charging of that tax among the Member States” (para 37). It would impose a “budgetary burden” on the Member State of establishment for VAT paid in other Member States, which is incompatible with the scheme’s purpose (para 41).
No Overall Margin Calculation: Allowing a refund for a negative margin would implicitly permit “a set-off between the losses and the profits generated by the activity,” which conflicts with the principle that the margin must be calculated for “each single service provided by the travel agent, not on an overall basis” (paras 35, 42).
Business Model Choice: The Court noted that P “freely chose its business model, with full knowledge of the structurally loss-making nature of the travel services it offers.” (para 42).

Conclusion on Q3: The Sixth Directive does not confer a right to a refund of input VAT where the margin of a single supply under the special scheme for travel agents is negative.

5. Key Takeaways and Implications

Broad Scope of Travel Agent Scheme: The special VAT scheme for travel agents (Article 26) applies broadly to any trader acting in their own name and reselling third-party travel services, even if they are not traditionally “travel agents” or if travel is combined with other activities like sales events.
Negative Margins Do Not Preclude Application: The scheme applies regardless of whether the travel component is profitable or loss-making. A systematically negative margin for the travel service, even if offset by revenue from other activities (e.g., goods sales), does not remove the service from the scope of Article 26.
No VAT Refund for Negative Margins: Under Article 26, taxable persons (like P) cannot deduct or claim a refund for input VAT on purchased services for which the margin is negative. This is a direct consequence of the special scheme’s design, which aims for simplification and fair revenue distribution among Member States.
Fiscal Neutrality is Subordinate to Express Derogations: The principle of fiscal neutrality cannot override specific, express derogations from standard VAT rules, such as the special scheme for travel agents.
Business Model Considerations: Businesses that package travel services with other offerings (especially those that cross-subsidize travel with other revenue streams) must carefully assess the VAT implications, as the travel component may fall under the special margin scheme, prohibiting input VAT deduction, regardless of the overall profitability of the combined offering.

This ruling clarifies that businesses structuring “attraction” or promotional trips with below-cost travel components fall under the special VAT regime for travel agents, with all its inherent limitations on input VAT deduction, irrespective of the profitability of the travel segment itself.