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Cyprus Indirect Tax Update - Special scheme for Tour Operators

Special scheme for Tour Operators

The Special Scheme for Tour Operators known as Tour Operators Margin Scheme (hereinafter referred to as “TOMS”) is implemented on the basis of the provisions of Article 41 (N95 (I) / 2000) and regulations 129 -136 of VAT (General) Regulations of 2001 (Κ.Δ.Π. 314/2001).

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KPMG in Cyprus

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Interpretative Circular 223 (24/1/2018)

Up until, the date of notification of the circular, and based on existing legislation, the TOMS is applicable to transactions carried out by tour operator directly to the traveler and its application is compulsory.

* Traveler: Is a person, including a business, who acquires transportation and/or accommodation services, for purposes other than resupplying them at a consideration.

In cases where the TOMS is applicable, the VAT base is the profit margin resulting from the deduction from the sale value of the designated travel service (Margin Scheme Services “MSS”) or package of the total cost of acquiring the DTS or the services constituting the package, including the VAT charged by service providers.

The place of taxation of transactions falling under the TOMS is the Republic, if the tour operator has his business or fixed establishment in the Republic.

What essentially changes with the circular and under what justification?

The ECJ, in a number of cases* it has examined, has decided that the TOMS can also be applied in cases where the designated travel service is offered to another taxable person for resale.

Therefore, the interpretation of the ECJ broadens the term "traveler" to include not only natural persons but all
taxable persons who purchase designated services for their own use or for resale.

*C – 189/11 (Spain), C - 193/11(Poland), C-236/11(Italy), C – 269/11(Czech Republic), C – 293/11(Greece), C – 296/11 (France), C – 309/11(Finland), C – 450/11(Portugal)

Time of implementation

Circular 123 points out that the implementation of the TOMS and for supplies to other taxable persons is in force since 23/9/13 when the ECJ decision was made.

Until 23/9/13, the scheme was applicable only to cases where the MSS were provided to the final traveler, whether it was an individual or an enterprise that acquires the MSS for their own purposes but not for resale.

The part of the circular that needs special attention

The Circular points out, that all cases, which have been so far examined by the Tax Department will not be re- examined and will be considered as complete. However if, any taxable persons have only received a written or oral answer from the Department, then this does not apply and the tax treatment described in this interpretative circular should be applied.

KPMG comment : The above position does not find us in agreement, because it separates taxpayers into two different categories favoring one of them. We suggest that, the date of application of the new tax treatment should be the date of issue of the relevant circular.

Irrespective of the above comment, all taxpayers who are involved in wholesale travelling services, and have accounted for VAT either at the reduced or standard VAT rate or have not paid VAT on the grounds that the transaction falls outside the scope, based on the place of supply rules, are faced with serious consequences that need to be addressed. Additionally, consequences are also detected in cases where input tax has been claimed in respect of this type of transactions.

Example

A Cypriot based tour operator acquires goods and services that fall under the definition of MSS from other taxable persons and resells them, either as individual services, or as a package without substantial alteration or further processing to a travel agent established (a) in Cyprus; (b) Greece and (c) Israel.

Let us assume that the individual service or package is enjoyed in (a) Cyprus, (b) Greece, or (c) Israel.

(a) Where the service or package is enjoyed in Cyprus

Regardless of where the business buyer is established, the Cypriot organizer accounts for VAT on the profit margin by applying the standard rate (19%) because the MSS / package is taking place in Cyprus.

(b) Where the service or package is enjoyed in Greece

Regardless of where the buyer is established, the Cypriot organizer accounts for VAT on the profit margin by applying the standard rate (19%) because the MSS/ package is enjoyed within the European Union (EU).

(c) Where the service or package is enjoyed in Israel

Regardless of where the buyer is established, the Cypriot organizer does not account for VAT on the profit margin because the zero rate applies since the MSS / package is enjoyed outside the European Union (EU).

The zero rate is provided in paragraph 11 of Schedule Six of the VAT Act.

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