Germany: Tour operator margin scheme

In brief

Germany | Federal Ministry of Finance denies TOMS for non-EU operators effective 1 January 2021

The German Ministry of Finance issued a decree on 1 February 2021 stating that tour operators who are not established in the EU with their headquarters or a fixed establishment may not use the tour operators' margin scheme simplification (TOMS). Tax offices are instructed not to object to the application of this simplification up until assessment periods in 2020. However, as from 1 January 2021 the simplification (TOMS) are denied.


Travel services rendered by a non-EU travel operator under the TOMS so far were considered out of scope of German VAT because their tax place was deemed to be at the place where the operator had established its business. At the same time, the operator was not entitled to deduct input VAT charged by travel services providers (e.g. hotels). If the simplification does not apply going forward, such travel services could be taxable in Germany (depending on the circumstances, e.g. as property-related accommodation services) and require a VAT registration in Germany. The VAT would not be calculated on a margin but on the full sales price. At the same time, the operator would now be able to deduct input VAT on the travel services procured from the travel service providers.

Notably, by the letter of the German law and its systematic interpretation the simplification would appear to apply to non-EU operators as well. The German TOMS law and its reference to the general place of supply rule does not expressly make a difference between EU and non-EU TOMS-suppliers. The Ministry of Finance based its decision to deny the TOMS-regulation on an interpretation of the EU VAT Directive, which arguably provides that the travel services, as an exception from the general tax place rules, shall be taxed only in the "Member State" of the tour operator (e.g. Art 307). The Ministry of Finance appears to have concluded that the TOMS-simplification may apply only when an EU Member State ultimately taxes the travel service.

As a general principle, a court should not interpret the German VAT law beyond the reasonable (or possible) meaning of its wording. It is therefore not clear at this point whether German TOMS rules could be applied (by a tax court) in line with the assumed meaning of the EU law as suggested by the Ministry in this particular case. It must be noted, however, that the German Federal Tax Court has occasionally restricted or extended the application of the German VAT Act even beyond its wording in the past (i.e. to align German VAT law with EU VAT law based on teleological considerations). Moreover, it appears possible that the Ministry's interpretation of the law will even be adopted into the German VAT Act on the next occasion so that the German law would more clearly reflect the Ministry's understanding of EU VAT law on TOMS for future filing periods.

Regardless of these considerations, it is not clear at this stage whether the Ministry's restrictive understanding of the EU Directive is actually the correct interpretation of the TOMS rules under EU law (which may ultimately need to be interpreted by the European Court of Justice in case of controversies). The relevant Art. 306 and 307 of the EU VAT Directive do not necessarily limit TOMS expressly to EU-based companies at least when describing the actual material requirements for the application of TOMS.

The implications of the tax decree can be material for non-EU operators in terms of the compliance efforts but also more broadly in terms of the possibly required (re)structuring of business operations and cooperation with travel service providers. Changes to the business models should be considered urgently because the tax decree applies retroactively for the month of January 2021. Tour operators could also decide to question the Ministry's interpretation of the law, ask for tax rulings or even litigate. In any event, non-EU operators that decide to oppose the Ministry's view and to keep applying the TOMS are well advised to inform the tax authorities accordingly (because it can generally be considered as a tax offence to go against the tax authorities' publicized positions without at least giving them the opportunity to review and object).

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