The Impact of Taxes on the Competitiveness of European Tourism Final Report Written by PricewaterhouseCoopers LLP (PwC) October 2017 EUROPEAN COMMISSION Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs Directorate F – Innovation and Advanced Manufacturing Unit GROW-F.4 — Tourism, Emerging and Creative Industries European Commission B-1049 Brussels The Impact of Taxes on the Competitiveness of European Tourism Final Report Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs The Impact of Taxes on the Competitiveness of European Tourism 2017 EUR 2017.5998 EN The Impact of Taxes on the Competitiveness of European Tourism Europe Direct is a service to help you find answers to your questions about the European Union. Freephone number (*): 00 800 6 7 8 9 10 11 (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you). LEGAL NOTICE This document has been prepared for the European Commission however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet (http://www.europa.eu). Luxembourg: Publications Office of the European Union, 2017 ISBN 978-92-79-69659-6 doi: 10.2873/22642 © European Union, 2017 Reproduction is authorised provided the source is acknowledged. Printed in Belgium 0 The Impact of Taxes on the Competitiveness of European Tourism PREFACE This report has been prepared for the project “The Impact of Taxes on the Competitiveness of European Tourism”, Specific Contract No. SI2.ACPROCE083933600, implementing the Framework Service Contract No. TAXUD/2015/CC/131 for the provision of economic analysis in the area of taxation. The following persons contributed to this study from PricewaterhouseCoopers LLP, London (the project leader): Amal Larhlid Simon Carey Tam Trinh Dr. Nick O’Donovan Dr. Caroline Pöschl Sanjay Naker Dr. Jonathan Gillham Barret Kupelian Shivangi Jain Tom Markovitch Leonard Wagenaar Martin Blanche Mark Arnold We are also grateful for the contribution of other local and international experts from across the PwC network. The information and views set out in this report are those of the authors and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this study. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein. 1 The Impact of Taxes on the Competitiveness of European Tourism TABLE OF CONTENTS ABSTRACT ............................................................................................................ 7 EXECUTIVE SUMMARY ............................................................................................ 8 1. INTRODUCTION ............................................................................................. 15 1.1. Background ............................................................................................ 15 1.2. Objectives .............................................................................................. 16 1.3. General approach .................................................................................... 16 1.4. Tour operators and travel agents ............................................................... 17 1.5. Accommodation providers ........................................................................ 18 2. TOURISM-RELATED TAXES ACROSS THE EU-28 ................................................. 20 2.1. Corporate and personal income taxes ........................................................ 20 2.2. Real estate taxes ..................................................................................... 28 2.3. Value-added tax (VAT) ............................................................................. 32 2.4. Occupancy tax ........................................................................................ 36 2.5. Air passenger duty/departure taxes ........................................................... 38 2.6. Other tourism-specific taxes and levies ...................................................... 41 2.7. General observations ............................................................................... 41 3. CASE STUDIES .............................................................................................. 43 3.1. General literature on the impact of taxes on the competitiveness of the tourism sector 43 3.1.1. Defining “tourism taxes” and “tourism competitiveness” ......................... 43 3.1.2. Price competitiveness and the impact of tax ......................................... 44 3.1.3. Non-price factors affecting tourism competitiveness .............................. 45 3.1.4. Literature on taxes relating to accommodation providers ........................ 45 3.1.5. Literature on taxes relating to travel agents and tour operators .............. 46 3.2. Criteria for the selection of case study countries .......................................... 46 3.3. Case study 1: The Balearic Islands (Spain) ................................................. 50 3.3.1. The tourism sector in the Balearic Islands ............................................ 50 3.3.2. Taxes on tourism in the Balearic Islands............................................... 51 3.3.3. The tax regime facing accommodation providers and travel agents and tour operators in the Balearic Islands ............................................................... 54 3.3.4. Competitiveness of the Spanish tourism sector ..................................... 56 3.3.5. Qualitative evidence for the impact of taxes on tourism sector competitiveness in the Balearic Islands ............................................................ 57 3.3.6. Economic impact of accommodation taxes in the Balearic Islands ............ 60 3.3.7. Impacts on public expenditure in the Balearic Islands ............................ 65 3.3.8. Conclusions ...................................................................................... 66 3.4. Case study 2: Paris (France) ..................................................................... 66 3.4.1. The tourism sector in Paris .................................................................... 67 3.4.2. Taxes on tourism in Paris ...................................................................... 68 3.4.3. The tax regime facing accommodation providers and travel agents and tour operators in Paris .......................................................................................... 71 2 The Impact of Taxes on the Competitiveness of European Tourism 3.4.4. Competitiveness of the French tourism sector ....................................... 74 3.4.5. Qualitative evidence for the impact of taxes on tourism sector competitiveness in Paris ................................................................................. 76 3.4.6. Economic impact of accommodation taxes in Paris ................................. 77 3.4.7. Impacts on public expenditure in Paris ................................................. 83 3.4.8. Conclusions ...................................................................................... 83 3.5. Case study 3: Cyprus ............................................................................... 84 3.5.1. The tourism sector in Cyprus .............................................................. 84 3.5.2. Taxes on tourism in Cyprus ................................................................ 85 3.5.3. The tax regime facing accommodation providers and travel agents and tour operators in Cyprus ....................................................................................... 87 3.5.4. Competitiveness of the Cypriot tourism sector ...................................... 89 3.5.5. Qualitative evidence for the impact of taxes on tourism sector competitiveness in Cyprus .............................................................................. 90 3.5.6. Economic impact of accommodation taxes in Cyprus .............................. 90 3.5.7. Impacts on public expenditure in Cyprus .............................................. 95 3.5.8. Conclusions ...................................................................................... 95 4. ECONOMIC ANALYSIS OF THE IMPACT OF TAXATION ......................................... 97 4.1. The economic contribution of tourism in the EU ........................................... 97 4.2. Drivers of competition in the tourism industry ............................................. 99 4.3. The impact of taxes on tourism ................................................................ 102 4.3.1. The theoretical framework of tourism taxes ............................................... 103 4.3.2. The impact of VAT on tourism ............................................................ 108 4.3.3. The impact of occupancy taxes on tourism .......................................... 121 4.4. Estimating the impacts of a change in tourism taxes ................................... 126 4.4.1. Methodology .................................................................................... 128 4.4.2. Findings for the EU-28 ...................................................................... 148 4.5. Conclusions ....................................................................................