Mega TMCs Join In Stance On Europe-Wide VAT Dispute

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 was disclosed in an October statement from HRG. Last month, BTN reported that European travel buyers and their TMCs face what one tax expert labeled "an administrative nightmare" starting Jan. 1, 2010, owing to the disagreement among 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.

If some countries apply Article 44 and others apply Article 47, VAT could be 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, the three TMCs chose to apply Article 44 in the United Kingdom pending EU clarification.

"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. "Jan. 1 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 accountancy 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."

"Our solution means clients will not have to face the complexity of multi-jurisdictional VAT charges and tax invoices," said HRG director of taxation Chris Gibson. "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."