Margenbesteuerung für Reiseleistungen nach § 25 UStG

Letter on behalf of the Action Alliance for Tourism Diversity (ATV) regarding margin taxation for travel services under Section 25 of the German Value-Added Tax Act (UStG) to the State Secretary at the Federal Ministry of Finance:

Dear Professor Hölscher,

We, the Alliance for Tourism Diversity (ATV), would like to extend our warmest congratulations to you on your new appointment as State Secretary at the Federal Ministry of Finance and wish you every success in tackling the challenging projects of this legislative term. In your role overseeing the Tax Department at the Federal Ministry of Finance, you are responsible for a range of issues that are crucial to Germany’s competitiveness as a business location.

My name is Michael Buller. I am the Executive Director of the Verband Internet Reisevertrieb e.V., one of the signatories and spokespersons for the Aktionsbündnis Tourismusvielfalt, an alliance of 28 associations in the tourism industry. On behalf of the Aktionsbündnis, I am writing to bring to your attention an issue that has been a source of great concern for both the German and international tourism industries for over a year. This concerns the so-called margin taxation for travel services under Section 25 of the German Value Added Tax Act (UStG) (cf. Articles 306–310 of the VAT Directive,“Tour Operators Margin Scheme,”TOMS). A departure by Germany from the current European understanding of margin taxation would pose an enormous challenge for the travel industry, particularly the departure from the practice currently in place in the European Union of applying margin taxation to tour operators not established in the EU and without an EU establishment (non-EU tour operators).

In the recent past, the Federal Ministry of Finance (BMF) proposed that tour guides who are not resident in the EU should no longer be subject to margin taxation. On January 29, 2021, the Federal Ministry of Finance published a decision by the highest federal and state tax authorities (III C 2-S 7419/19/10002:004 (DOK 2020/0981332)), which stipulated: “Section 25 of the Value Added Tax Act (UStG) does not apply to travel services provided by companies that are established in a third country and do not have a permanent establishment in the European Community.” After the tourism industry had pointed out the massive adjustment problems to be expected, the Federal Ministry of Finance and the highest state tax authorities finally decided on March 29, 2021 (III C 2-S 7419/19/10002:004 (DOK 2021/0361661)), to extend the non-objection rule until December 31, 2021. In the meantime, the non-objection rule has been provisionally extended through December 31, 2022, effective December 1, 2021 (III C 2-S 7419/19/10002:004 (DOK 2021/1207583)).

The Federal Ministry of Finance’s (BMF) argument for moving away from margin taxation for tour operators not established in the EU is based, in particular, on an interpretation of EU law pursuant to Article 307, second sentence, of the VAT Directive. In our view, it is questionable whether this legal opinion holds up (given the wording of the German law as set forth in Section 25(1), sentence 1 of the German Value Added Tax Act). Below you will find a detailed explanation of our legal opinion.

There is no doubt that an EU-wide reform of the EU margin scheme—which has been in place since 1977—is needed; we expressly support the European Commission’s ongoing review of the VAT System Directive. However, against the backdrop of an EU-wide coordinated and harmonized VAT regime, it is urgently necessary to await the successful conclusion of the European Commission’s review process before making unilateral amendments to Section 25 of the German Value Added Tax Act (UStG) or the German Value Added Tax Implementation Act (UStAE):

• The European Commission is currently drafting a proposal to amend the VAT System Directive and to address the future treatment of margin taxation within the European Union, particularly in light of harmonized VAT legislation in the EU. The proposal is expected to be presented in 2023. In light of this evaluation, however, it is imperative that the German government wait for the European Commission’s proposal before taking any further unilateral steps, in order to ensure mutual understanding and an agreement supported by all member states within the Community. Only in this way can double taxation of tour operators resulting from a lack of harmonization—or a competitive disadvantage for Germany as a tourism destination—be reliably avoided.
• In its preparatory study titled“Review of the VAT Rules Applicable to the Travel and Tourism Sector,” which is currently being conducted by the Center for Social and Economic Research (CASE) in collaboration with Oxford Research, the European Commission has explicitly emphasized the principle of equal treatment between EU and non-EU travel operators.

Given the significant importance of the tourism industry in Germany—which is already under severe pressure due to the COVID-19 pandemic—as well as the international travel industry in general, we fear dramatic consequences if unilateral measures—such as an amendment to Section 25 of the German Value-Added Tax Act (UStG) or a revision of the German Value-Added Tax Implementation Act (UStAE)—were to create a fait accompli without taking into account the European Commission’s proposal to amend the VAT System Directive, which will offer a realistic prospect of a harmonized and future-proof TOMS regime. Such an approach would be legally questionable and would also be characterized by significant legal and planning uncertainties for tourism companies.

Below you will find a more detailed explanation of the need to coordinate with the European Commission’s review process. We ask that you take the following points—and in particular the European context—into account in your further deliberations.

With regard to the financial and economic consequences—some of which could be dramatic—that are expected to result from the abolition of margin taxation for non-EU tour operators, affecting not only these operators but the entire German tourism industry, we also refer to the details provided in our letter dated May 12, 2021 (III C 2-S 7419/19/10001:005 (DOK 2020/0981332)).

• As explained in detail there, if margin taxation were abolished for tour operators not based in the EU , in addition to the effects described above , a significant reduction in the supply of tourism and business travel to and within Germany, as well as a substantial withdrawal from the market for Germany as a tourismand business travel destination by non-EU tour operators, and consequently a significant loss of tax revenue for the public sector.
• Moreover, such a departure from the established system of EU VAT rules entails, not least, a significant degree of legal uncertainty as well as the risk of double taxation for businesses.

In several letters sent throughout 2021, various tourism industry associations have attempted to discuss the highly complex issue of margin taxation in a face-to-face meeting with representatives of your office, unfortunately without success so far (see, among others, the letters from the BVDIU dated February 24, 2021, the ATV dated April 23, 2021, and the VIR dated March 19, 2021, and May 12, 2021). The extension of the non-objection period until the end of 2022, as well as the ongoing review process at the EU level, now creates a window of opportunity to engage in an intensive personal exchange and constructive discussion for the first time. To this end, we would like to expressly request a personal meeting with you and your colleagues.

I look forward to hearing from you. Best regards,

on behalf of all associations

Michael Buller

Board of Directors

Association of Online Travel Agencies