Tour Operators and VAT

Revenue practice has changed with regard to the VAT status of tour operators. From 1 March 1979 until 1 May 2007, tour operators had been treated, in the same manner as travel agents, as being exempt from VAT and not entitled to claim repayment of VAT suffered on expenses. A ‘tour operator’ (for the purposes of this article) is a person who, as a principal, supplies ‘package holidays’, being transport, accommodation and related services, outside of this State. Typically, a tour operator will own or lease the aircraft and the holiday apartments that form the basis of the package. This is different from a travel agent, who only acts as an agent in booking transport or accommodation on behalf of a customer. It is now accepted that tour operators may be entitled to claim repayment of Irish VAT on their inputs in respect of their transport and accommodation services supplied outside of this State. The accompanying article gives full detail of the circumstances in which VAT may be reclaimed.

1. Tour Operators and VAT

For the purpose of this article a'tour operator' is a person who, as a principal, supplies ‘package holidays’ (transport, accommodation and related services) outside of this State to its customers. Typically, a tour operator will own or lease the aircraft and the holiday apartments that form the basis of the package. This is different from a travel agent, who only acts as an agent in booking transport or accommodation on behalf of a customer.

2. Old Treatment

Prior to 1979 tour operators were treated as carrying on qualifying activities and were entitled to claim repayment of VAT on their inputs. Travel agents, however, were exempt, with no entitlement to claim such repayment. Following the transposition of the EU Sixth Directive into national law, Revenue and representatives of tour operators agreed that tour operators were to be treated in the same manner as travel agents with effect from 1 March 1979. Since then tour operators have been treated as being exempt from VAT and as such were not entitled to claim repayment of VAT suffered on expenses.

3. Revised Treatment

Following a decision in principle by the Appeal Commissioner, Revenue has accepted that tour operators, who had previously been treated as exempt, may now be entitled to claim repayment of Irish VAT on their inputs in respect of their transport and accommodation services supplied outside of this State.

It should be noted that tour operators including those established outside of the State who supply accommodation services in this State are no longer treated as carrying on exempt activities. Accordingly, such tour operators must register for VAT in respect of the accommodation services supplied in this State unless they are accounting for VAT on these services under the EU Special Scheme for travel agents in another Member State.

4. Claims for Repayment for Prior Years

This article sets out the requirements that a tour operator needs to comply with in order to obtain repayments of VAT, and how to calculate the amounts of these repayments. All claims to repayment of VAT must be supported by an explanation of the circumstances in which the claim has arisen together with comprehensive computations of the make up of each claim.

5. Time Limits

It should be noted that any claims to repayment of VAT are restricted to claims received within the statutory time limits, which provide that repayment claims must be made within a specified period of years from the end of the taxable period to which the claim relates. The statutory time limits are as follows:

• In the case of claims relating to taxable periods ending before 1 May 1998 – 10 years where the claim is made before 1 May 1999 and 6 years where the claim is made in the period from 1 May 1999 to 31 December 2004. Claims made on or after 1 January 2005 in respect of such taxable periods are statute barred.
• In the case of claims relating to taxable periods ending on or after 1 May 1998 and before 1 May 2003 – 6 years where the claim is made before 1 January 2005 and 4 years where the claim is made on or after 1 January 2005.
• In the case of claims relating to taxable periods ending on or after 1 May 2003 – 4 years.

Revenue will treat a letter from a tour operator, which notified Revenue of an intention to make a claim in respect of any specified period(s), as being the receipt of a claim for that period (or claims for those periods) and any subsequent period up to and including the VAT period ending 30 April 2007, subject to full details of the claim(s) now being provided.

6. Documentation in Support of the Claim

Any tour operator who claims repayment of VAT on the grounds that he/she has supplied ‘qualifying services’ will be required to provide the following:

• Copies of all agreements with carriers which support the claim that the tour operator is/was supplying as principal transport of passengers outside of the State.
• Evidence of ownership of accommodation outside of the State which is/was supplied to its customers, or
• Copies of any agreements with the accommodation providers in other States, which supports the claim that accommodation was provided outside of the State by the Irish Tour Operator as principal.
• Confirmation that repayment of VAT was not claimed by the tour operator in respect of the tour operator business from any other Member State under the Eight Council Directive 79/1072/EEC.
• Evidence that the tour operator was liable to income/corporation tax in other States in respect of the profits from the provision of accommodation as principal in those other States.

7. Entitlement to Input Credit

Credit is allowable for VAT suffered on goods and services insofar as the goods and services are used for the purposes of the tour operator's qualifying activities subject to the usual restrictions set out in Section 12(3) of the VAT Act 1972.

Credit is not allowable for VAT suffered on goods and services insofar as the goods and services are used for the purposes of the tour operator's exempt supplies if any (e.g. travel agency services or foreign exchange services).

Where VAT is suffered on goods or services used for the purposes of the tour operator's exempt supplies and qualifying activities (dual-use goods/services) credit is allowable for the proportion of the VAT suffered which correctly reflects the extent to which the dual-use goods/services are used for the purposes of the tour operator's qualifying activities. (See Revenue leaflet A Guide to Apportionment of Input Tax).

8. How to Calculate the Amounts of the Repayments

Where the tour operator has not claimed input credits for prior years, Revenue is prepared to accept repayment claims calculated by the use of the methodology set out hereunder:
Step 1 Identify the total amount of input VAT suffered in the relevant period.
Step 2 Reduce this figure by the following:

• the amount of VAT which is non-deductible in accordance with Section 12(3) VAT Act,
• the amount of VAT referable to any exempt activity carried on by the tour operator,
• the proportion of the amount of VAT suffered on dual-use goods/services referable to the exempt activities carried on, if any.

Example 1: Period January to December 2005 (Taxable and Exempt activities)

Input VAT		€50,000
Less
VAT on non-deductible items (section 12(3))	€2,000
VAT referable to exempt activities,	€1,000	€3,100
VAT exempt portion of dual use inputs	€100
Total refundable		€46,900
Example 2: Period January to December 2005 (No exempt activities)
Input VAT	€50,000
Less
VAT on non-deductible items (section 12(3))	€2,000
Total refundable	€48,000

9. Interest

Interest is payable by Revenue in relation to repayment claims in accordance with section 21A of the Value-Added Tax Act 1972 (as amended). Tour operators should submit their computation of interest payable with their claims.

10. Adjustments to Repayment Claims to Take Account of Income tax/Corporation Tax Liabilities

Tour operators will have claimed a deduction for income tax or corporation tax purposes in respect of VAT borne on the provision of tour operator services that is now the subject of a VAT repayment claim. Accordingly, adjustments will be required to the income tax/corporation tax liability for the relevant years/accounting periods arising from any repayment of VAT made to the taxpayer. Rather than re-opening prior years of assessment/accounting periods to give effect to these adjustments, for ease of administration the VAT repayment plus interest to be made for the years/periods in question should be reduced by the amount of the additional income tax/corporation tax that falls due.

11. Claims Already Submitted

Some tour operators may have already lodged claims to repayment of VAT to the Accountant General VAT Repayments or their local Revenue District. The documentation referred to at number 6 above should now be submitted in support of claims. The Revenue office to which the claims were made will be in contact with the tour operator in the near future.

12. Position from 1 May 2007

All claims to repayment by tour operators for future periods should be submitted to the Office of the Revenue Commissioners, Strategic Planning Division, VAT Unregistered Repayments, 3rd Floor, River House, Charlotte Quay, Limerick. (Telephone Lo-call 1890 252449 or 00353 61 212799, Fax 00353 61 402125, email unregvat@ revenue. ie).