88. Margin scheme – travel agents

Summary

This section transposes the EU VAT Directive provisions concerning the travel agent’s margin scheme into Irish law. The travel agent’s margin scheme applies from 1 January 2010 to tour operators and travel agents, acting as principals, whose supplies consist of services such as transport, accommodation, etc., which they have bought in from third parties for onward supply to travellers.

The supply of such services as a travel package is treated as a single supply. The taxable amount is the profit margin realised by the travel agent on the supply of the travel package. The rate applicable to the margin scheme services is the standard rate where the holiday is within the EU, and the zero rate where the holiday is outside the EU. Under the scheme, there is no entitlement to deduct input VAT incurred on the bought-in services, but VAT incurred on overheads is deductible, subject to the normal rules.

Details

(1) Subsection (1) contains definitions of the key elements of the scheme.

The term ‘bought-in services’ refers to goods or services purchased by a travel agent from another business for the direct benefit of a traveller. In general, this covers services used by the traveller during the journey – for example, transport and accommodation.

The term ‘margin scheme services’ means bought-in services supplied by a travel agent to a traveller. The scheme does not apply to supplies made by one travel agent to another, for onward supply to the traveller. It does not include services provided by the travel agent to the traveller from the travel agent’s own resources.

A ‘travel agent’ is a taxable person who acts as a principal in the supply to a traveller of margin scheme services. For the purposes of the margin scheme, tour operators are also considered to be travel agents. Note that the term does not cover travel agents who act in a capacity as commission agents.

The term ‘travel agent’s margin’ refers to the amount on which the travel agent is liable to VAT. In simplest terms, it is calculated by subtracting the total cost of bought-in services from the total consideration for the margin scheme supply. There is no liability (margin) if the costs exceed the sales figure.

The ‘travel agent’s margin scheme’ is the special arrangements for the taxation of margin scheme services.

(2) Under subsection (2), all the margin scheme services – for example, accommodation, transport, tour guide services – supplied by a travel agent to a traveller in respect of a journey are treated for VAT purposes as a single supply.

(3) The place of supply of margin scheme services is where the travel agent has established his or her business.

However, if the travel agent supplies the services to the traveller from a fixed establishment elsewhere (such as another Member State), then the place of supply of those services is the place where the fixed establishment is located.

(4) The travel agent’s margin scheme is a mandatory scheme for supplies of margin scheme services supplied in the State.

(5) The profit margin (exclusive of tax) is the amount on which tax is chargeable.

(6) A travel agent may not deduct input VAT, or get a refund of tax, in respect of bought-in services that are supplied on to the traveller as margin scheme services.

(7) Subsection (7) provides for the apportionment of the consideration payable by the traveller where a supply for a single consideration covers both margin scheme services and other goods or services. Only that portion which covers the margin scheme services is to be taxed under the margin scheme. The balance is taxed according to the normal rules.

(8) Subsection (8) provides that the travel agent’s services are treated as intermediary services (for the purpose of zero-rating them) if the bought-in services (such as hotel services) are availed of by the traveller outside the Community.

(9) Subsection (9) deals with the apportionment of the travel agent’s margin for a travel package that includes travel services both inside and outside the Community.

(10) The travel agent must account for VAT due on margin scheme services in the normal VAT return.

(11) The Revenue Commissioners may make regulations on the operation of the scheme in general and for simplified accounting arrangements in particular.

Relevant Date: Finance Act 2020