Under normal VAT rules, most travel services are subject to VAT in the country in which they take place.

Businesses which sell EU travel services in their own name have long been protected from having to register and account for this VAT in the EU country of service by the our Operators Margin Scheme (Toms) rules.

It has always been a point of debate as to whether non-EU businesses can rely on these same Toms rules for protection but, prior to now, no member state has ever fully enforced this.

However, Germany’s finance ministry recently announced it does not consider EU Toms rules to apply to non-EU businesses, effective from 1 January 2021.

This means that UK businesses will need to apply the normal German VAT rules.

In most cases, this will mean a German VAT registration is required for UK businesses supplying German travel services.

We have no confirmation yet as to how other member states may react, and whether they may follow suit.

Initial comments from advisors in other EU member states have not identified any other member states which are actively pursuing this at the moment.

However, the treatment of non-EU tour operators has long been on the agenda of the EU Commission, and this German development is likely to bring focus to this point on an EU-wide basis.

This was always a risk to UK travel businesses once the UK left the EU, and is of course worrying news for those operating EU travel.

At the moment, there is still a great deal of uncertainty, so businesses should not yet spend considerable resources in confirming their position EU-wide.

However, businesses should be cautious of this development and take steps to estimate the possible exposure by considering for each EU country in which their travel services take place:

• The likely VAT payable in those countries – for example, what rates of VAT apply to the travel services? Is input VAT recoverable in full? Outside of Toms, many EU countries have reduced rates for tourism services so overall VAT payable may be less than it previously was under the Toms rules pre-2021.
  
  
• The likely costs of compliance – this varies widely across the EU. In some countries the costs are similar to those in the UK, but in others can be considerably more, especially where a fiscal representative is required.
  
  
• Ensure all purchase invoices you receive from EU suppliers are valid VAT invoices.
  
  
• Consider whether you may be able to operate as a disclosed agent instead – although this is not normally practical under EU law for package organisers, those selling standalone services may be able to benefit from an agency position, as these rules will not apply to disclosed agents.

Laura Chipp is director of travel VAT and Toms advisory firm Vatnav and associate director – head of VAT at travel accounting firm Elman Wall.