American Express, Carlson Wagonlit Travel and HRG have told the United Kingdom's tax authorities they will take a united approach to applying value-added tax to hotel booking fees as they await resolution of a European Union-wide dispute on the issue.
The decision by the three travel management companies to act in concert was disclosed in a statement from HRG last week. Last month,
EuroBTN revealed that European travel buyers and their TMCs are facing what one tax expert has labeled "an administrative nightmare" starting Jan. 1, 2010, owing to the disagreement between EU member states.
An EU cross-border VAT directive that comes into effect on that date means VAT on hotel booking fees could be charged in one of two ways. Under Article 44 of the directive, VAT would be charged at the place of supply, which is defined as the location of the customer. This would make the application of VAT consistent as well as easy to reclaim. However, the tax authorities of several EU states, including Germany, believe VAT should be applied under Article 47, which relates to immovable property and would lead to VAT being charged in the country where the hotel is based. This would require TMCs to register for VAT in the country of each hotel it books, and corporate clients would have to reclaim VAT from the respective VAT authorities.
In addition, a stand-off with some countries applying Article 44 and others applying Article 47 could lead to VAT being charged twice on some international hotel bookings and not at all on others.
Last month, a committee meeting of member state tax authorities failed to reach the required unanimous agreement on whether to apply Article 44 or Article 47 to hotel booking fees. With the next committee meeting not due until December, three of the largest TMCs have chosen to apply Article 44 in the United Kingdom pending clarification from the European Union.
"We will carry on applying Article 44 until a decision is made," said Nigel Turner, director of industry affairs for CWT UK, who confirmed that his company, Amex and HRG had jointly hired a VAT consultant. "1 January is coming around very quickly, so we had to do something. We think the status quo is the most practical approach and the most sensible."
David Bennett, a partner with the accounting firm Saffery Champness, endorsed the decision of the three TMCs. "It is a pretty sensible line to take because the inability of the member states to agree on this has left them in an almost impossible position," he said. "They cannot be expected to wait until mid-December for a decision on an arrangement that needs to be in place by Jan. 1."
Bennett added that TMCs are even more justified in acting because there is no certainty the next committee meeting will resolve the issue. Sources said member states are evenly split over Article 44 or Article 47, although the Commission itself favors Article 44, as do all European travel agency associations.
Bennett believes an Article 44 determination would be much better for corporate travel buyers. "If Article 47 is applied, VAT will not be recoverable everywhere, and even where it is, it will be much more time-consuming to recover, so it is not good news," he said.
HRG director of taxation Chris Gibson agreed. "Our solution means clients will not have to face the complexity of multi-jurisdictional VAT charges and tax invoices," said Gibson. "In addition, our position is consistent with the Commission's objective of simplifying VAT administration, not only for us and other businesses but also for the tax authorities of the member states."
HRG told
EuroBTN it provisionally would apply Article 44 in Germany as well, even though the German government favors Article 47.