Members of the United Kingdom-based European Tour Operators Association (ETOA) are up in arms against the European Court of Justice over a ruling that they deem will render them “uncompetitive,” and that is just the start.
The European Court of Justice issued a ruling On September 26, 2013 which overruled the way in which wholesale travel has been taxed in the UK. The Tour Operators Margin Scheme (TOMS) taxation now has to be applied on business-to-business transactions. The judgment effectively obliges all wholesalers to reveal their gross margins to their clients and to account for taxation on a transaction-by-transaction basis.
These two measures place an acute competitive and bureaucratic burden on any business caught by the tax, says ETOA. “They mean that there is a tax on the company’s gross margin; which a competitor based outside the EU does not pay. They also oblige operators to show their business customers how much margin they are making.”
After allowing time for the industry to evaluate the implications, ETOA conducted an online survey on “all the major UK-based inbound tour operators and wholesalers on the impact.”
According to ETOA chief executive Tom Jenkins, “One of my tour operators said ‘it not only renders me uncompetitive, it makes me reveal how uncompetitive I am to my customer!’ The method of calculation also creates an almost insurmountable clerical difficulty.”
Another one told Jenkins: “It would be impossible for us to calculate our Value Added Tax (VAT) by transaction. This year we will have over 350,000 transactions.”
But even more seriously, according to ETOA, the ruling applies VAT to all tourism exports, including any packages in which a UK holiday is sold through a third party and any sale of a European package to a business based in most of the important origin markets, including, China, India and the USA. “It makes the UK less competitive, it makes selling the UK less competitive and it makes the UK less competitive as a base for doing tourism business.”
ETOA’s web survey revealed three major concerns for UK tour operators regarding TOMS—“competitiveness against wholesalers based in non-EU countries,” “ability to sell the UK as a destination,” and likelihood of being “forced to relocate offshore.” Asked to measure from a scale of 1 to 10, with 1 being “not at all” and 10 being “extremely,” a whopping 72 percent of respondents said TOMS would make affect their ability to compete with non-EU wholesalers. On the query on how the new ruling would impact the way in which they can sell UK as a destination, 48 percent gave it a 10, 24 percent gave it a 9 and 20 percent gave it an 8.
How likely is it that you would be forced to relocate offshore? A combined 28 percent of the respondents picked between 1, 2 and 3, indicating they wouldn’t be “forced to relocate.” However, the majority of respondents (combined total of 68 percent) answered between 7, 8, 9, 10, indicating that they would be “forced to relocate” because of TOMS.
“Operating in the UK (and Europe) will not be competitive and we will grow our investment in our US office and migrate our business outside the EU,” said Andrew Grieve, managing director of Discover Travel & Tours. “We cannot operate and compete successfully in a global marketplace under an uncompetitive tax regime. Thousands of jobs in the European based inbound industry will be lost with this tax on exports.”
Karen Cianfini, managing director of Tour Box Ltd also weighed in on the controversial ruling. She said: “I am a small business, involved in promoting the UK as a destination to businesses throughout the world. A ruling by the ECJ (on 26th September 2013) says that I now have to pay tax on all my tourism exports. A competitor based in, say, Switzerland, does not have to do this.”
She added: “This ruling leaves my business in a hopelessly uncompetitive position. One of my biggest clients based in Kuwait (over 70% of my business) would not be able to work with me anymore due to the fact that they could place the business with one of my Swiss competitors at a massively reduced rate. I would be forced to close my company and make four people redundant.”
According to her, she is a mother of twins, one whom is seriously disabled, and “I need to work for myself in order to work at all with the schedule of hospital appointments for my 7-year-old son. This would mean I too would be unemployed.”
“It’s hard enough to compete in this industry being based in the UK as it is – this will make it impossible,” bemoaned Cianfini. “I have written to my MP [Member of Parliament] to ask the Chancellor to delay implementation of this ruling until reform of this tax is underway.”
eTN will be publishing comments from ETOA’s survey respondents in an upcoming eTN ROAR article. Watch your Inbox!