Business trip in the VAT margin procedure - is it possible?

Service-Tax

The settlement of certain services under the VAT Act may be subject to a special procedure, commonly known as the VAT margin procedure. Such services include, among others, the organization of business trips, but under certain conditions. Business trips in most cases involve the need to arrange accommodation, provide meals to the employee, rent a conference room, use the hotel parking lot or business conference services during such a trip. It often happens that the organization of such business trips is entrusted to external entities that offer a comprehensive service of this type, of course for an appropriate remuneration. Therefore, there are close relations between three entities: the hotel (accommodation base), the entity providing the services of organizing a business trip and the recipient of the service (client). However, the question arises whether services of this type are included in the category of tourist services, and therefore whether to account for a business trip in the VAT margin procedure?

Tax base and the possibility of applying the VAT margin procedure

Pursuant to Art. 29a paragraph. 1 of the VAT Act, the taxable amount is everything that is the payment that the supplier of goods or the service provider has received or is to receive for sale from the buyer, recipient or a third party, including received subsidies, subsidies and other payments of a similar nature having a direct impact on the price of the goods or services provided by the taxpayer.

Pursuant to art. 119 paragraph. 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 tax due, subject to paragraph 5 of this article.

Pursuant to Art. 119 paragraph. 2 of the VAT Act, the margin is 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 from other taxpayers for the direct benefit of the tourist; services for the direct benefit of the tourist are understood as services constituting an element of the provided tourism service, in particular transport, accommodation, meals and insurance.

The above regulations apply to services that constitute the entire tourist service provided by the organizer. The use of the word "especially"Means it is an open directory. Consequently, other services purchased from other entities for the direct benefit of the tourist will constitute an element of the tourism service provided.

Although the VAT Act does not clearly define what types of services are purchased for direct benefit, pursuant to Art. 119 paragraph. 2 of the Act, it should be assumed that the purchase of those services and goods that meet the needs and expectations of the tourist while using the tourist service will, in the case of providing tourist services, constitute a calculation element to determine the margin.

According to Art. 119 paragraph. 3 of the VAT Act, the provision of para. 1 shall apply regardless of who purchases the tourism service, where the taxpayer:

  1. acts for the buyer of the service on his own behalf and for his own account;

  2. when providing the service, it purchases goods and services from other taxpayers for the direct benefit of the tourist.

The cumulative fulfillment of the above conditions makes it obligatory to apply a special procedure of taxation of tourism services with a margin.

It should be noted that the basic criterion for the legitimacy of the application of special rules of margin taxation is the recognition of the entire package of benefits as one tourism service.

It is a comprehensive service provided by the taxpayer, covering various component services provided for the direct benefit of the tourist, without which the tourist event could not take place, and they must be purchased from other taxpayers.

A business trip in the VAT procedure, the margin and tourist services

The VAT Act does not contain a definition of "tourism services". It also does not refer to the definition contained in other normative acts. However, it can be found in the content of Art. 307 of Directive 2006/112 / EC of the Council of 28 November 2006 on the common system of value added tax: "All transactions made by travel agencies in connection with the implementation of the trip (package travel) are considered as one service provided by the travel agency to the traveler”.

On the other hand, pursuant to Art. 4 point 1 of the Act of 24 November 2017 on tourist events and related tourist services, a tourist service should be understood as:

  1. transport of passengers,

  2. accommodation for purposes other than residence, which is not an integral part of passenger transport,

  3. rental of motor vehicles or other motor vehicles,

  4. other service provided to travelers, which does not constitute an integral part of the services referred to in point (a). a – c.

According to the definition of the Dictionary of the Polish language by PWN Scientific Publishers, tourism is organized trips outside the place of permanent residence for a longer or shorter stay, wandering in a foreign area for sightseeing or health purposes.

On the basis of the above, it should be concluded that the tourism service is a complex service, which consists of a number of services (external and own), such as accommodation, catering, transport, aimed at organizing the stay of the client outside his place of residence. These services are so closely related that they objectively form a whole in economic terms (one service, one product). The scope of the tourism service covers partial services without which a given tourist event could not take place. Thus, package or individual leisure trips combined with recreation and entertainment (ie a comprehensive program of events) should be considered as tourism services.

The above definition was indicated by the Director of the National Tax Information in the individual interpretation of October 3, 2018, 0114-KDIP1-3.4012.442.2018.1.ISK.

Therefore, the tourist service should cover additional services aimed at making the trips in question more attractive to end users by organizing, e.g.rest, recreation or sport that would go beyond the official nature of the trip. Start a free 30-day trial period with no strings attached!

Example 1.
The company is an active VAT payer conducting business activity, the subject of which is, inter alia, organizing business trips of clients (trips to carry out activities related to the business activities of the Company's clients, usually lasting from one to three business days) or other persons designated by them, such as employees, contractors or contractors. It provides its services on its own behalf and on its own account.

The company cooperates with a chain of several hundred hotels located in Poland and abroad. The key element of the relationship between the Company and the hotel is a high discount (30% -50%) granted by the hotel to the Company's clients, which does not happen automatically, but requires agreement each time. No settlements are made between the Company and the hotel (granting a discount), i.e. neither the hotel pays the Company, nor the Company pays the hotel. The benefit of the hotel is the increase in sales of services, while the benefit of the Company is the price that customers pay for its services. The company is not liable to the hotel for the actions or omissions of the client. Provides services to clients on the basis of contracts that oblige it to choose a hotel of a standard adequate to the client's expectations, negotiate the price with him, book hotel services, confirm the booking to the client, purchase hotel services (the basic hotel service is to provide accommodation and this element is Always present Due to the business nature of the trips, the hotel services purchased often also include: using the car park, preparing meals, providing a conference room, technical support for business meetings, etc. services performed for the client, possible cancellation of the reservation, handling of possible complaints from the client towards the hotel.

In view of the above analysis of the nature of the tourist service, its definition and scope, it can be concluded that the business trip indicated in the example constitutes a tourist service, and if so, can the VAT margin procedure be applied?

In the first place, it must be examined whether the services provided by the company mentioned in the example in the form of organizing business trips constitute 'tourism services' as defined above. Then, after positive verification, it is necessary to start testing whether the company meets the conditions set out in Art. 119 paragraph. 3 of the VAT Act.

In the example given, the main object of the company's services is the organization of purely business trips. The nature of additional services in the form of providing a conference room, business meetings and accommodation with parking and preparing meals proves that the only subject of business trips is their purely business nature. The hotel services in question, together with additional services, are aimed at organizing a comprehensive service in the form of a "conference service" or "business meeting". However, there is no element of entertainment and recreation, typical rest.

As stated by the Director of the National Tax Information in the individual ruling of October 3, 2018, 0114-KDIP1-3.4012.442.2018.1.ISK., Sales of hotel services along with additional elements in the form of using a car park, preparing meals, providing a conference room or technical service business meetings cannot be considered a tourist service. As a consequence, the taxpayer cannot use the special scheme for tourism services referred to in Art. 119 of the VAT Act (VAT margin procedure), and therefore the service in question should be taxed on the general principles set out in Art. 29a of the VAT Act.

Nevertheless, it should be noted that if the service in the form of organizing a business trip was combined with elements of recreation and relaxation, e.g. additional services in a hotel SPA or organization of integration in the form of e.g. kayaking, then this type of service would be included in the definition of tourism service. and as a consequence, the taxpayer could account for a business trip in the VAT margin procedure.