Does Corporate Santa Claus Bear VAT?

In many industries, the end of the year represents a moment of assessment of targets completion and also rewarding those clients with whom the company has reached certain business level, or in other words, determining which of the clients shall receive a corporate Santa Claus visit in the form of incentive trips or other benefits.

In this context, we have been recently required to provide an opinion with respect to the VAT regime of services provided by a travel agent headquartered in a Member State, which organized an incentive trip for a Romanian company.

Or, in the context in which, at the end of the year marketing budgets are close to the red line, the value of the VAT for an incentive trip, which normally has increased costs, would have significantly burdened the company, hence the legal advice need.

What is important to note with respect to the VAT regime of the services provided by travel agents is that we must distinguish between two situations:

  • When the travel agent does purchase plane tickets, hotels and other services from the direct providers, in its own name and subsequently sells those services/goods to the client, adding its own commission;
  • When the travel agent does not purchase any good or service in its own name, but merely acts as an intermediary between the client and the seller/services provider;

In the first situation the taxable amount shall be the travel agent’s margin, that is to say, the difference between the total amount, exclusive of VAT, to be paid by the client and the actual cost to the travel agent of supplies of goods or services provided by other taxable persons, where those transactions are for the direct benefit of the client.

As far as the place of taxation is concerned, the single service shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has carried out the supply of services.

Also, it is important to note that if the services contracted by the travel agents in its own name and resold to clients, are performed by providers outside the Community, the supply of services carried out by the travel agent shall be treated as an intermediary activity VAT exempted.

In the second situation, the taxable amount for VAT purposes shall not include amounts received by the travel agent from the client, as repayment of expenditure incurred in the name and on behalf of the client, and entered in his books in a suspense account, but merely its commission.

Instead of a conclusion we note that the VAT regime of incentive trips should be determined on a case by case basis, depending on the actual location where the services shall be provided to the client and also taking into consideration the place of business of the travel agent.

Alexandra Ologu,
Coordinating attorney Sioufas & Colaboratorii

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