USTOA Provides Update on Proposed German Sales Tax on Vacation Packages

The United States Tour Operators Association (USTOA) this week issued a statement about the pending German sales tax, currently due to be implemented on January 1, 2023. According to USTOA, the Finance Ministry of the Federal Republic of Germany has reiterated its determination to impose a new tax on vacation packages taking place in Germany. This value added tax (VAT) is a sales tax specifically focussed on transactions that occur outside the European Union.

If implemented (it has been postponed three times), a U.S. business selling German product to a U.S. consumer will be expected to register with the German Authorities and pay a sales tax on the price paid. This applies to packages that only partially include Germany, i.e., a European tour that spends one night in Germany would have to pay sales tax on that proportion of the tour.

USTOA adds that this appears to be irrespective of when the sale was made. What this means: Many packages sold before the pandemic have had to be rescheduled into 2023 from 2020; these would then be caught in the proposed tax plan.

“There is an important principle here,” said Terry Dale, president and CEO of USTOA. “USTOA tour operator members are already paying VAT on the services they buy in Germany. They then add value by packaging, marketing and selling this product in America. What this tax is attempting to do is impose a sales tax on activities taking place in the U.S.”

Dale continued: “There has been no attempt by the German authorities to alert the industry that this is happening, no warnings, no explanations, no clarity. We understand that the Finance Ministry thinks that it is the responsibility of those doing business in Germany to know and obey the law. But this is not to do with business taking place in Germany, it is explicitly a tax on business taking place in the U.S.”

“Beyond the cost, several aspects of this proposal are alarming,” said Tom Jenkins, CEO of the European Tour Operators Association (ETOA), “Outside agency agreements, anyone selling Germany will have to register with the respective German tax office, complete monthly returns, include calculations reclaiming any tax paid and applying tax on the price paid by the consumer. Not only is this burdensome, in several circumstances input tax is non-refundable, leading to unavoidable double taxation.”  

“The German authorities are trying to collect a sales tax in North America. Normally, this would be regarded as a historic folly. In doing so, they are taxing the process of exporting German services on which tax is already paid. This is an absurd situation, which damages Germany as a destination,“ Jenkins added.

Added Adele Youngs, president, Student and Youth Travel Association: “Because of the proposed tax changes, many within the youth travel sector are avoiding it. Until now, Germany has been well-suited to young first-time visitors: A safe destination with an offer that is competitive in product and price. Businesses are deterred by the proposed administrative load as well as the cost increase. Our industry is used to managing with uncertainty, but the lack of explanation on how to comply with the new rules is notable. U.S. and Canadian demand are strong so other destinations will benefit.”

As of October 2022, the European Commission is embarking on plans to reform tax on tourism. It is proposed that the legislative framework should be ready by the end of 2023. This reform would supersede this initiative.

There is every reason for the German Authorities to either postpone implementation or exclude sales to non-E.U. citizens from this damaging initiative, said USTOA.

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