The travel and tourism sector is one of Europe’s biggest economic drivers. Many EU Member States rely heavily on tourism for jobs and growth — and with the EU representing around 50% of the global MICE (Meetings, Incentives, Conferences and Events) market, it’s also crucial to the EU economy as a whole.
Yet, the EU VAT rules that govern tourism are showing their age. Written decades ago, they are ill-suited to today’s digital economy and fail to reflect how modern tourism businesses actually operate. From online booking platforms to the boom in consumer-to-consumer (C2C) travel services, the industry has transformed — but the VAT system has not kept pace.
We consider that a fundamental rethink is required in respect of the Tour Operator’s Margin Scheme (TOMS) — a system designed to simplify VAT for travel businesses, but which in practice has become complex and outdated.
TOMS often puts EU-based tour operators at a competitive disadvantage compared with businesses outside the EU. It also creates market distortions and additional costs for customers, especially for business-to-business (B2B) transactions, where the recovery of input VAT is a major issue.
The rules on place of supply, timing, and margin calculation are notoriously difficult to apply, and their inconsistent interpretation by Member States adds another layer of uncertainty. At the very least, TOMS should be made optional for tour operators, with clearer and harmonised definitions across the EU.
The complexity of the EU VAT framework continues to weigh heavily on the travel sector, particularly SMEs, which form the backbone of Europe’s tourism ecosystem. Allocating VAT between Member States for cross-border travel services is administratively burdensome and costly, discouraging innovation and cross-border growth.
There are also growing concerns around the VAT treatment of aviation and maritime fuel. While international agreements limit the EU’s ability to act unilaterally, the current system risks undermining the Union’s climate and sustainability targets.
Any VAT reform in this area must strike a careful balance between environmental responsibility, social fairness, and freedom of movement. EU citizens who depend on these transport modes should not face disproportionate costs.
A targeted approach from the European Commission could start by focusing on the most carbon-intensive transport sectors, testing how VAT can be used as a policy tool to achieve climate targets. At the same time, the VAT system should actively support greener transport options, and not negatively impact them, as it could be currently the case.
