European Commission refers 8 Member States to Court over their VAT rules for travel agents

The European Commission has decided to refer the Czech Republic, Finland, France, Greece, Italy, Poland, Portugal and Spain to the EU's Court of Justice for failing to properly implement EU VAT rules for travel agents. The VAT Directive 2006/112/EC contains special provisions (the so-called ?special margin scheme?) for travel agents when they sell travel packages to travellers. However, the Member States being referred to Court on this matter have implemented these special provisions incorrectly, leading to distortions in competition between travel agents.
The ?special margin scheme? was included in the VAT Directive in order to simplify the application of VAT for travel agents, given the fact that elements of the packages they sell may be located in different countries and therefore may be subject to different VAT rules. Travel companies can benefit from the special margin scheme when they sell travel packages to travellers. However, the scheme does not apply to travel agents who sell holiday packages to other companies, in particular to other travel agents for re-sale.
The 8 Member States being referred to Court today on this matter are not implementing the special margin scheme correctly, often by allowing it to apply to sales between travel agents. This creates distortions of competition between travel agencies, as it leads to some agents carrying a heavier tax burden than others.
In 2006, the Commission analysed the application of the special margin scheme across the EU and found 13 Member States to be implementing it incorrectly. Since then, Cyprus, Hungary, Latvia, the Netherlands and the UK have changed their legislation to conform with the EU provisions. However, Czech Republic, Finland, France, Greece, Italy, Poland, Portugal and Spain did not take the necessary measures to amend their rules, which is why the Commission is referring them to the Court of Justice.
The Commission already sent reasoned opinions to these Member States in February 2008 (see IP/08/333).
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