News article

Rental of only accommodation without additional services is a travel service

A Polish company exercises an economic activity of “hotel broker”. In that context, it offers its customers (entrepreneurs carrying out commercial activities) the possibility of booking accommodation in hotels and other similar establishments in Poland and abroad. In its own name and for its own account, the company purchases accommodation services from other VAT taxable persons in order to resell them to its clients.

Depending on the needs and expectations of its customers, the company also provides advice on the choice of accommodation and helps organize their trip. In most cases, the company only provides accommodation services. For this, it charges a price that includes its profit margin in addition to the cost of acquiring those services.

The Polish tax authorities consider that the resale of accommodation services is not a “travel service” and therefore does not fall under the special tour operator regime (TOMS). To do so, according to the tax authorities, it requires that there is a composite service consisting of a set of in-house and external services, and thus that it includes multiple services. The mere resale of accommodation is not a composite service.

Tour Operator Margin Scheme

The tour operator margin scheme applies, according to Article 306 VAT Directive, to the transactions of travel agents, insofar as they do not act as intermediaries, but in their own name towards the traveler, and use supplies of goods and services from other VAT taxable persons for the creation of the trips. This scheme is an exception to the general scheme of the VAT Directive, and may therefore be applied only to the extent necessary to achieve its objective.

According to the Court, the main purpose of this special scheme is to avoid the problems that the general provisions of the VAT Directive would cause, particularly for transactions involving the supply of services from third parties. The general rules concerning the place of taxation, the taxable amount and the deduction of input VAT would give rise to practical difficulties because of the wide variety of those supplies and the places where they are carried out. And that, in turn, would lead to an obstacle to the exercise of those activities.

Travel agency

The tour operator margin scheme applies only to VAT taxable persons acting in their own name towards the traveler and using supplies of goods and services purchased from other VAT taxable persons for the provision of travel services.

In this case, it is established that the Polish company, as a hotel broker, purchases accommodation services in its own name from other VAT taxable persons in order to resell them to its customers. It is therefore considered a travel agent for VAT purposes and, in principle, qualifies for the tour operator margin scheme. Moreover, the Polish company’s activities are similar to those of a travel agency or tour operator. Depending on the needs and expectations of its customers, the company also occasionally provides advice on the choice of accommodation and assistance in organizing trips.

Travel service

Since the company is considered a travel agent for VAT purposes, the question is whether the accommodation services provided fall under the special scheme for travel agents if no additional services are provided.

In the Alpenchalets Resorts case (C-552/17 dated 19.12.2018), the Court ruled that excluding a service from TOMS merely because it relates to the provision of accommodation would lead to a complex tax system contrary to the objectives of the VAT Directive, in which the constituent elements of the services offered to each traveler would determine which VAT regime applies.
Accordingly, the provision of vacation accommodation by a travel agent is a travel service covered by the special tour operator scheme, even though that service includes only accommodation.

Operative part of the judgment

Article 306 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the purchase by a taxable person of accommodation services from other taxable persons and their resale to other operators is covered by the special scheme for travel agents for the purposes of value added tax, even though there are no ancillary services.

ECJ, C-108/22, C., June 29, 2023