New European VAT rules set to increase online travel booking costs

“Today’s announcement by the EU Commission will have widespread implications for consumers and businesses using apps and platforms such as Booking.com and AirBnB and others to book and provide travel and accommodation in EU countries. The EU’s new drive to close the gap on undeclared and unpaid VAT on services from short-term accommodation letting to passenger transport mean that many will be liable to either pay VAT for the first time or to pay more VAT than is currently applied. Ultimately this will lead to higher prices for consumers who are already facing a cost of living crisis as costs across the supply chain are set to increase.

“The technology providers that operate the booking platforms will also face considerable challenges from this announcement. They can expect significantly increased administration costs if they are processing the transactions which are now subject to VAT or increased VAT where it was previously not collected. For many platform operators, there will be the need to collect and remit VAT at multiple VAT rates applied by different countries based on where the underlying supply, such as accommodation, takes place. There is also the potential for joint and several liability risks if/where the underlying supplier does not remit VAT to the tax authorities. There will also be significant data reporting requirements where the platforms will be responsible for providing the details of the underlying suppliers to the EU tax authorities.

“The fact that the EU believes these changes could capture an additional 6 billion euros per annum once they come into effect demonstrates the significance of today’s announcement, although the exact implementation date for the changes is yet to be agreed by the Member States.”