New VAT Rules: Travel Company Shows The Way Forwards

Hogg Robinson Group Presents HM Revenue & Customs with a Solution for Problems with Forthcoming Changes to European Value Added Tax Cross Border Rules

Introduction

Hogg Robinson Group has presented Her Majesty’s Revenue and Customs (HMRC) with a solution to the ongoing challenges created by the cross-border rule change under the new European (EU) Value-Added Tax (VAT) Directive. Hogg Robinson Group, as a lead member of an industry group, has informed HMRC of its intention to adopt the general place of supply rule for hotel bookings which will lead to simpler administration for both itself and its clients.

Background - VAT Place of Supply of Services

The EU place of supply of services rules determine in which country a service is liable to VAT. The proposed amendment, which comes into effect on 1 January 2010, could be interpreted as meaning that Travel Management Companies would need to become VAT registered in multiple European countries and charge foreign VAT to clients. Clients would then need to try and reclaim the VAT from that foreign tax authority, potentially increasing the real cost of the service. Hogg Robinson Group’s interpretation would remove all of the above and mean that the client was charged just the one country’s VAT on the service. Hogg Robinson Group first identified the challenges that the rule change will create back in 2007. Since then, the company has been at the forefront of an industry-wide move to lobby the UK tax authorities and the European Commission to bring about a workable solution.

How The New Cross Border Rule Changes Affect Travel Management Companies

The EU VAT cross border rule changes are intended to modernise and simplify VAT rules relating to cross-border supplies of services to business customers and to minimise the amount of foreign VAT incurred on services from other EU countries. Under Article 44 of the Directive, the place of supply of most services will shift from the location of the provider to that of the customer. This would reduce the amount of foreign VAT suffered by business customers and enable them to recover any VAT through their existing VAT returns.

However, the booking of hotel accommodation by Travel Management Companies can be interpreted as falling within Article 47 of the Directive, relating to immovable property. Under this article, every Travel Management Company would need to register for VAT in each country in which it books an hotel and charge local VAT on its fee to the client. Apart from the incremental administration for the Travel Management Company, the customer would incur additional foreign VAT and face administrative difficulty and cost in its recovery.

Chris Gibson, Director of Taxation at Hogg Robinson Group comments:

“We have proactively taken the only sensible, pragmatic and technically sound approach to this challenge which is to apply the general place of supply rule. Whilst we recognise that many other sectors of industry and commerce may also be affected by the new rules, the business travel industry will suffer a disproportionately damaging impact although we cannot assume that this would be the intention of the rule changes which have been promoted by both the Commission and Tax authorities in general as being aimed at simplification.

Most importantly for us, our solution enables us to continue to look after the very best interests of our clients as it means that they will not have to face the complexity of multi-jurisdictional VAT charges and tax invoices. In addition, our position is consistent with the Commission’s objective of simplifying VAT administration for business to business transactions, not only for us and other businesses but for the tax authorities of the member states as well.”

Article Added Saturday, 21 November 2009

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