EUROPEAN TRAVEL POLICY, 18 July 2002

EUROPEAN TRAVEL POLICY – INSTANT NEWS ON TRAVEL POLICY IN EUROPE

EU’S ECONOMIC AND SOCIAL COMMITTEE QUERIES EU VAT PLAN FOR TRAVEL AGENTS

EUROPEAN TRAVEL POLICY, 18 July 2002

It would be better to zero-rate some travel services for VAT than to apply the changes the European Commission is proposing to the tour operators margin scheme, according to the EU’s Economic and Social Committee. The committee voted overwhelmingly on July 17 for a report which welcomes the intention behind the Commission’s recent proposal – of creating more of a level playing field for EU tour operators and travel agents (see EUROPEAN TRAVEL POLICY of February 18). But it says the approach is just as likely to leave the travel trade facing ponderous administrative procedures, without dealing with the key problem of unequal competition between EU-based and non-EU-based operators. Reflecting some of the arguments that have been advanced by the travel trade itself (see, for instance, EUROPEAN TRAVEL POLICY of May 14), it warns that the consequence is likely to be continued relocation of EU operators outside the EU, it says, with a consequent loss of overall VAT revenues to EU member states.

The committee recognises the need for change. "A major problem concerns the different application of the rules by the member states", it says. Member states apply the scheme in very divergent ways, which can lead in some instances to double taxation. It also creates competitive disadvantages for companies established in member states that apply the scheme only where the package is sold to the final consumer, in comparison to competitors established in member states that have a more flexible approach.

The proposals for a global margin calculation and the removal of a number of existing options and derogations granted to member states constitute worthwhile improvements, it says. It also welcomes the prospect of the scheme being applied to transactions between travel agents. "These changes are likely to be of particular benefit to smaller firms". The Committee regrets, however, that member states have been given discretion on the application of the global margin calculation.

But it expresses concern at the potential complexities of the " opt-out" arrangements the Commission has proposed. "In order to place themselves on an equal footing with operators in third countries when supplying tax-registered customers, EU-based travel agents would have to opt out of the scheme; this would then involve them in all the complexities of the normal VAT arrangements; their clients could only obtain refunds of the VAT paid by recourse to the cumbersome EU procedure and only then in those cases where the member state concerned was prepared to admit claims in respect of this type of expenditure.

In many cases, the "opt-out" provision will prove unworkable in practice, the committee warns. It offers the example of a travel agent who makes a block booking of rooms in a hotel for a season and will be invoiced by the hotelier for the entire booking as a single transaction; where the bulk of his customers are non-VAT-registered persons, this will be charged in some cases at a VAT-inclusive price; if the travel agent subsequently sold a package containing a stay in one of these rooms to a registered business, he would now have to go back to the hotelier and ask for an amended invoice for the original transaction and a VAT invoice for the one room for the relevant period.

The committee also anticipates that difficulties will be encountered in obtaining compliance from operators based outside the EU. Unless a satisfactory way can be found of doing this, the incentive for EU-based operators to move off-shore will not be removed. It says: "the Commission’s objectives, including the removal of the incentive for travel agents to operate off-shore, could be more satisfactorily met and all the concomitant complexities removed by the simple expedient of zero-rating these services (some of which are already zero-rated in some member states)."

TRAVEL TRADE VIEWS ON EU WORKING TIME RULES IN ROAD TRANSPORT

EUROPEAN TRAVEL POLICY, 18 July 2002

New European Union plans to harmonise social legislation on road transport are good in general, but leave unanswered some key questions, according to one significant component of the European travel trade. Incoming and intra-European tour operators – heavily dependent on coaches for much of their business – say they favour measures to improve conditions for drivers. But they warn that putting coach transport into a regulatory strait-jacket could prevent them from delivering what their customers want.

The proposal aims to update and simplify 1985 EU legislation governing working time in the road transport sector, so as to standardise national practice more closely, and to make monitoring and enforcement more effective. It lays down driving times and rest periods (12 hours a day), and seeks to regulate more precisely when rest periods are taken.

But the European Tour Operators Association has pointed out that if the new rules are too constraining on the length of breaktimes that drivers must take, passengers could be left stranded arbitrarily and unnecessarily. It backs the principle in the EU proposals of increasing the minimum break, but it argues for greater flexibility in the way it is to be implemented. "The reality of life in large urban areas such as London means there is frequently nowhere for a coach driver to take a break as long as 30 minutes", says ETOA. It is urging a formulation that corresponds more closely to the reality of coach operation: "During any period of five hours which includes driving, a driver must have had at least 45 minutes break, which may be broken down into periods of not less than 15 minutes".

The proposal is currently under discussion in the European Parliament’s transport and tourism committee. Helmuth Markov, the Euro-MP drafting the report for the committee, wants to bring further legal certainty into the measure, with tighter definitions of concepts such as "driving time", and by reducing the number of exceptions still to be allowed. He also wants to make driving time of 45 hours a week the rule.

ETOA has told Markov that it broadly welcomes the proposals, and some of the amendments that he is seeking to them. "They generally clarify and harmonise complex regulations", says ETOA. "Consistency of application will be of great benefit to those who operate tours throughout Europe". Meanwhile, it has listed a number of "important alterations" it feels could improve the legislation still further, covering everything from reliance on tacographs to the seating capacity of vehicles covered by the rules, and from the use of bunks in vehicles to questions of contractual liability. ETOA’s central message is that new rules ostensibly aimed at improving safety can become counter-productive if they in fact make coach travel – already a very safe form of transport – less attractive or less effective. Customers wishing to travel will be induced to use other forms of transport – less safe, or more likely to cause pollution and congestion. It would be an error, says ETOA, to treat coach passengers in the same way as bulk goods. "Our clients require flexibility from their suppliers; the greatest threat to coach transportation (and so to the safety of road users in Europe) is the removal of the ability for operators to meet their clients’ needs", it says.

UK UNDER EU FIRE ON VAT FOR ROAD TOLLS

EUROPEAN TRAVEL POLICY, 19 July 2002

The UK has been told by the European Commission to impose VAT on road tolls. If it doesn’t, it could be taken to the European Court of Justice, and suffer daily fines for non-compliance with EU rules. Under a Court of Justice ruling in September 2000, VAT at the standard rate has to be levied on tolls paid for the use of roads, bridges and tunnels that are operated by the private sector (although not those operated by the public sector). The UK has already failed to respond to a warning in March this year about its failure to put in place the EU rules.

SERVICE AREA SUBSIDIES IN TENERIFE ARE NOT STATE AID, SAYS EU

EUROPEAN TRAVEL POLICY, 18 July 2002

The European Commission has decided that the arrangements for the construction of service areas for use by road hauliers in Tenerife do not amount to state aid. The Spanish government scheme, with a budget of Euro 300,506, is intended to help regional road haulage associations to construct service areas comprising rest areas, cleaning facilities and workshops. Road hauliers belonging to the associations will use these service areas to avoid causing traffic congestion in urban areas. The Commission has recognised that the island of Tenerife is at a structural disadvantage, causing added difficulties for road hauliers. Road haulage on Tenerife is marked by low economic capacity. The average trip distance is short, with few economies of scale, which results in higher prices than on the mainland. The subsidy scheme does not affect trade between member states and is not a threat to competition. The service areas are exclusively for local use and the measures apply only to Tenerife and not throughout the Canary Islands. Only local or regional ope rators have access to these subsidies, which are unlikely to significantly strengthen the competitive position of Tenerife’s road hauliers in relation to their competitors in intra-Community trade.

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