How to settle tourist services in VAT margin?

Service-Tax

Running a travel agency for entrepreneurs is a real challenge. The provision of tourist services is subject to taxation in accordance with a special margin procedure intended for travel agencies, which may cause a taxpayer to have a dilemma regarding the settlement of such services. In the article below, we discuss how to settle tourist services and how to determine the margin.

Tourist services - tax obligation in VAT and PIT

The regulations currently in force (specifically Article 19a (1) of the VAT Act) indicate that the tax obligation under VAT in the case of travel agencies occurs at the time of delivery of the goods or performance of the service. If the taxpayer receives all or part of the payment prior to the provision of the tourist service, the tax obligation also arises upon its receipt, but only in relation to the amount received.

However, in the case of income tax, in accordance with Art. 14 sec. 1c of the PIT Act, the date when the tax obligation arises in PIT should be considered the date of delivery of the item, sale of the property right or performance of a service or partial performance of the service, no later than the day:

  1. issuing an invoice or

  2. payment of receivables.

If the taxpayer has received the payment prior to the provision of the tourist service, he should document it with an advance VAT invoice in the VAT margin procedure. It should be issued no later than on the 15th day of the month following the month in which all or part of the payment was received from the buyer.

Tourist services - tax base

How do I pay for travel services? This question is asked by many travel agencies. In practice, the most problematic is understanding the principles of determining the tax base in terms of provided tourism services.

In order to correctly determine the tax base, one should refer directly to the VAT Act, and more precisely to the chapter "Special procedures for the provision of tourism services".

It was indicated there that the tax base in the case of:

  • tourism services - this is the margin, i.e. the difference between the amount to be paid by the buyer of the service and the actual costs incurred by the taxpayer for the purchase of goods and services for the direct benefit of the tourist (i.e. services constituting an element of the tourism service provided, including: transport, accommodation , meals, insurance) - reduced by the VAT due.

  • own services (services performed in-house, as part of a tourism service, i.e. the service is not purchased from other taxpayers, e.g. a pilot or a translator) - it is everything that makes up the payment that the service provider has received or is to receive for the sale from the recipient , including received grants, subsidies and other payments of a similar nature which have a direct impact on the price of goods or services provided by the taxpayer.

Art. 119 sec. 1 of the VAT Act:
The taxable amount for the provision of tourism services is the amount of the margin reduced by the amount of the tax due, subject to paragraph 5.
paragraph 5 If, when providing a tourism service, in addition to services purchased from other taxpayers for the direct benefit of the tourist, the taxpayer performs some of the benefits as part of this service, hereinafter referred to as "own services", a separate tax base for own services and separately in with regard to services purchased from other taxpayers for the direct benefit of the tourist. In order to determine the tax base for own services, the provisions of Art. 29a.

How do I pay for travel services in the event of receiving an advance payment?

The taxpayer providing tourist services usually receives advance payments from buyers for the future service well in advance. Due to the fact that the received advances have consequences only in terms of VAT in the case of the VAT margin procedure, the output tax should also be shown. The tax base should be the amount of the margin, which is determined in the same way as in the case of the service provided - i.e. as the difference of the advance payment received and the amount spent on the purchase of goods and services for the direct benefit of the tourist, less the VAT due.

However, a problem may arise in determining the costs taken into account for calculating the margin when the advance has been received well in advance and not all expenses have yet been paid. In such a situation, the taxpayer may adopt a simplification - that is, the forecast of the expected margin. In other words, the trader can make an estimated margin value based on a certain price for the trips based on projected costs. However, it is important for the taxpayer to have documentation that clearly shows the method of the adopted cost calculation and its justification (contracts, proforma, forecasts).

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The above action is confirmed by the Director of the National Tax Information in the individual ruling of April 20, 2017, number 2461-IBPP2.4512.172.2017.1.AD, in which we can read: Thus, the receipt of an advance by the Applicant from the client for the future tourism service gives rise to a tax obligation at the time of its receipt. Due to the specificity of tourism services and the possible lack of knowledge about the actual costs incurred at the time of receiving the advance payment, the Applicant is obliged to tax the advance payment by specifying the margin by means of a forecast, i.e. calculating it on the basis of the initially estimated costs to be incurred for the services provided. This means that the Applicant can assume what margin he wants to realize or take into account the margin that he usually uses when providing similar services. If, after the service has been performed, and the Applicant knows the actual value of the costs incurred and the actual margin, it turns out that the "final" margin will be different from the forecast - the Applicant will be obliged to make a tax adjustment (positive or negative) at the time of the service.

Direct benefit for the tourist and own services

As far as the settlement of tourist services is concerned, it should be noted that they do not only consist of services related to the direct benefit of the tourist, i.e. food, accommodation, transport. As part of the services provided, the taxpayer may also perform some kind of own services, e.g. caring for camp participants, conducting didactic or entertainment activities by persons employed for this purpose.

In this case, the tax base for own services (pursuant to Article 29a of the VAT Act) and for services purchased from other taxpayers for the direct benefit of the tourist should be determined separately.

Importantly, entrepreneurs who act for the buyer of the service on their own behalf and on their own account and purchase goods and services from other taxpayers for the direct benefit of the tourist, are not entitled to reduce the amount of tax due by the amount of input tax on goods. and services purchased for the direct benefit of the tourist.

Adjustment of VAT on the margin

After the tourist service has been provided, it may be necessary to correct the output VAT shown on the basis of the received advances. The reason for this is the difference between the previously forecasted and the actually obtained amount of the margin on the sale of tourist services. In such a case, when the value of all costs incurred is already known, the taxpayer is obliged to make an appropriate adjustment of the output tax. The correction should be included in the VAT declaration and JPK_VAT for the period in which the service was performed.

In addition, taxpayers should take into account the issue of the obligation to prepare a correction of VAT and JPK_VAT declarations for the period of the service, if in the following periods costs related to direct benefits of tourists were incurred.

How do I pay for travel services? - example

The travel agency provides tourist services in the form of sale of package tours to Venice, Tunisia and Paris. In July this year, the travel agency sells a trip to Venice for 6,000. zlotys organized in September this year. The travel agency accepts advance payments from customers for the organization of the trip. The first client of the office decided to go on a trip to Venice and made an advance payment for the full price of the trip (PLN 6,000) in July this year.

The office in August this year. In connection with this trip, the costs of booking accommodation for the tour group, meals, transport services and the tour leader service were incurred.

Due to the obligation to register the received advance payment, the taxpayer calculated that the cost of purchasing goods and services from other entities for the direct benefit of the client will be PLN 4,250. Then he calculated the estimated gross margin as the tax base in the amount of PLN 1,750 (PLN 6,000 - PLN 4,250). After issuing the VAT invoice, the taxpayer recognized the margin in July this year. in the VAT declaration, the amount of tax due on this transaction in the amount of PLN 327.24 [(PLN 1750 / 1.23) x 23%).

In September, due to the fact that the cost in fact amounted to PLN 4,750 and the service was performed that month, the entrepreneur is obliged to show in the VAT return for September only the amount of the reduction of the net margin and the tax due in relation to the amounts indicated in the VAT return for July. Thus, in the VAT declaration for September this year. the taxpayer should show the tax due in the amount of PLN -93.50 (PLN 233.74 - PLN 327.24).

To sum up, taxpayers providing tourist services have more and more obligations related to VAT settlement. Therefore, there is no direct answer to the question of how to account for tourist services. Everything depends on the specifics of the service provided and the economic events that will take place in a given transaction. However, at present, entrepreneurs must, inter alia, demonstrate the tax due for the period of receiving advance payments for the performance of services in the future. At the same time, it creates a problem with determining the amount of the margin, when the exact amount of all costs incurred related to a specific service is not known. The solution is to create an appropriate forecast and then make an adjustment at the time of billing the service.