Plans to make online travel booking agent "platforms" responsible for paying VAT on accommodation and transport in the EU
The European Commission has published proposals to make travel booking "platforms" pay local EU VAT from 1 January 2025. The proposal is that platforms located anywhere in the world, including the UK, will be required to pay EU VAT when their platform provides the means to sell short term accommodation rental or passenger transport, if the accommodation/transport service is in the EU and where the service provider itself does not pay VAT. This is likely to affect online booking platforms such as OTAs, holiday home rental agencies and other similar businesses.
At present, if a business acts as principal in selling accommodation or transport, it is required to account for VAT in the place in which the service takes place (or, in many cases, rely on the TOMS rules to avoid this charge). Many online platforms act as disclosed agent for the service provider instead such that they are not currently required to pay VAT locally. Strictly speaking, in such cases the service provider themselves should often be registered and account for VAT locally. However, sometimes due to a lack of knowledge (to be generous) or a difference in the rules between countries, this is not the case and this can mean distortions of competition (for example, between hotels and people renting their property individually).
From the current proposals, we understand that in these cases, the platforms acting as disclosed agent will be treated as making a deemed supply and so will be required to account for VAT as if they were themselves the service provider (but assuming using their own selling price). We understand that they will not be allowed to account for VAT within TOMS and so would need to instead account for local VAT to each member state, assuming that country requires payment for that service (some, for example, have exemptions for short term lettings at the moment, although it is proposed that this exemption be withdrawn). I expect that the platform would not have any VAT to recover on its purchase by definition, so this would be a considerable dent to its profits unless it reduced its payments to the service providers by the amount of tax due. The proposals allow for platforms to be excused the need to pay VAT in some circumstances (e.g. where its role is limited).