Bill to abolish VAT exemption for travel agencies, tourist offices etc.

Date 15 maj. 2009
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The Danish Government and Dansk Folkeparti (the Government’s cooperative partner) (hereinafter referred to as the Parties) have 1 March 2009 entered into an agreement on the package of measures to be implemented in the spring, version 2.0.  In that connection, a draft bill has been introduced to amend the Value Added Tax Act and the Payroll Tax Act.

 

According to the Parties, the reason for the draft bill is the existing special VAT rules. Different types of VAT exempt business activity entail a competitive advantage over related activities.

 

On this background, the Parties have agreed to abolish Vat exemption in connection with delivery of real property, travel agencies etc., and property management as from 1 January 2011.

 

Further, the Parties have agreed to increase payroll tax for companies in the financial sector. The amendment takes effect as from 1 January 2013.

 

 

Governing law for travel agencies, tourist offices etc.

Today Denmark adopts a provisional scheme, the so-called ”stand still” clause, under which Denmark can maintain the national Vat exemption rules, which were already in force when the sixth VAT directive came into force in 1978.

 

If Denmark did not apply the provisional scheme, travel agencies’ delivery og goods and services would be liable VAT in accordance with articles 306-310 in the Council Directive 2006/112/EC of 28 November 2006 (hereinafter referred to as the “Directive”) on the common VAT system.

 

The present VAT exemption for travel agencies does not include all types of travel agency activity.

 

There is, however, exemption from VAT in situations where a travel agency acts in own name towards the traveller but in connection with the realisation of the journey applies goods and services supplied by other persons liable to VAT. The VAT exemption includes both travels within and outside the EU.

 

Activities which a tour operator performs in connection with planning, arrangement and realisation of tourist journeys are likewise considered travel agency activities.  

 

If a travel agency only performs some services itself and buys all other services from subsuppliers, the price shall be allocated in a VAT free and a VAT liable part according to the above.

 

Sale of packet tours are also VAT liable according to the general VAT rules, in that packet tours are not considered as sold to the traveller.

 

If a travel agency acts as agent for another company’s services, Vat liability also applies. This means that a travel agency which only acts as agent and not in own name or at own expense is fully liable to the VAT principal rule for delivery of VAT liable services.

 

Finally, the information services of tourist offices are exempt from VAT under the governing rules. Though, tourist offices’ delivery of other goods is not subject to the rules on VAT exemption.

 

 

Content of the bill

If the bill is passed, VAT exemption for travel agencies will be abolished and article 306-310 in the Directive comes into force.

 

The VAT liable value is the travel agency’s profit margin, which is taken to mean the difference between the total amount without VAT, which is to be paid by the traveller, and the actual cost of the travel agency to other companies, when such deliveries directly benefits the traveller.

 

At the same time, VAT exemption is abolished for the information services of tourist offices, so that these services will be included in the principal rule on the delivery of VAT liable services in the future.

 

It has likewise been proposed to abolish the payroll tax for travel agencies and the information services of tourist offices, which are currently subject to the present Vat exemption.

 

 

Consequences of the bill

The governing rules on VAT exemption for travel agencies are comprehensive than the rules for travel agency services in the Directive on the common VAT system.

 

Denmark have had authority in the abovementioned provisional scheme to maintain the VAT exemption, which otherwise would have been subject to the Directive. If those parts of the travel agency services presently exempt from VAT are made liable to VAT, it will be possible to reintroduce the exemption on a national basis at a later point of time.

 

 

If you have any questions or require additional information on the package of measures to be implemented in the spring, version 2.0, please contact attorney Dan Moalem (dmo@mwblaw.dk) or attorney Henning Hedegaard Thomsen (hht@mwblaw.dk).

 

The above does not constitute legal counselling, and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.