10th February 2014
The European Court of Justice (CJEU) has given its decision on whether a self-funded discount given to travellers buying holiday packages would reduce the VAT payable by the travel agent. The Court has decided against the taxpayer ruling that there should not be a deduction in the amount of VAT paid in these circumstances.
By way of background Ibero Tours is a German travel agent who provided the service of selling a holiday package to the traveller on behalf of a tour operator. In order to sell the holiday package, Ibero Tours offered a self-funded discount. The package price of the tour and the amount payable to the tour operator did not change as a result of the discount given. This is due to the fact that the discount was funded from the agency commission Ibero Tours had earned from the tour operator as a result of selling the holiday package.
The Court decided that there was no legal reduction in the consideration paid for either the sale of the holiday by the tour operator or the commission due to Ibero Tours as agent. Therefore the self-funded discount was merely 3rd party consideration for the supply of the holiday package. This means that travel agents will need to continue to pay VAT on the full amount of commission due under its contract with the tour operator even though it doesn’t retain it in full. The decision is slightly odd in that it focuses heavily on whether the tour operator can reduce the VAT it accounts for, whereas the issue at hand here was supposed to be one of whether the travel agent can reduce the VAT due on the commission earned. The decision contradicts the AG opinion which in itself is not unusual, but the AG seemed to be more travel agent focussed and suggested that the adjustment was valid.
The outcome of the Ibero Tours case supports the decision given by the First Tier Tax Tribunal in Tui & Others case which was referred to the Upper Tribunal last year. The case was stayed pending the outcome of Ibero Tours. It will be interesting to see what happens next from a UK perspective and whether the case will continue to be heard at the Upper Tribunal (much will depend upon whether the Taxpayer can distinguish itself from the facts in the Ibero Tours case). This is clearly important to the UK travel industry given the sum at dispute.
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