Taxation

Value added tax - travel agent contributing to price of holidays - tour operator liable to pay VAT only on amount paid by travellerCustoms and Excise Commissioners v First Choice Holidays Plc: ChD (Neuberger J): 28 June 2000

A tour operator offered holidays for sale at a published list price, and required travel agents to account to if for that price but also permitted the travel agent to allow the customer a discount.

In such circumstances the travel agent effectively funded the discount out of the commission to which he was entitled from the tour operator.

A Value Added Tax and duties tribunal held that, under art.26 of the Sixth Council Directive (77/388/EEC) and art.7 of the Value Added Tax (Tour Operators) Order 1987, where a travel agent offered a discount the tour operator only had to account for VAT by reference to the reduced price.

The customs appealed.Philip Sales (instructed by Solicitor, Customs and Excise) for the customs.

Kevin Prosser QC (instructed by KLegal) for the tour operator.Held, dismissing the appeal, that although art.7 of the 1987 Order referred to 'sums paid or payable to' the tour operator, art.26(2) of the Directive required VAT to be assessed by reference to 'the total amount to be paid by the traveller' to the tour operator; that art.7 had to be interpreted as having implied into it a limitation to sums paid or payable to the tour operator by the customer or traveller concerned; and that, accordingly, where the customer paid a reduced price and the tour operator received the balance from the travel agent, the margin was to be assessed by reference to the reduced price.