VAT rate to be applied to ancillary temporary guest accommodation services
 

On June 12, 2024, three requests for preliminary rulings were received at the Court of Justice of the European Union (CJEU) from the Bundesfinanzhof (Federal Supreme Tax Court) - cases C-409/24, C-410/24 and C-411/24.

These cases focus on determining the VAT rate applicable to ancillary services offered in temporary accommodation.

In Germany, while the provision of rooms for temporary accommodation is taxed at a reduced rate of 7%, other ancillary services which are not directly related to the rental are, because of that national imposition, taxed at the standard rate of 19%, even if they are paid for as part of the main service.

The central issue in the reference is whether a Member State (in this case, Germany) can exclude from the reduced VAT rate other services considered to be ancillary, such as parking, breakfast or fitness.

In this context, the CJEU was asked whether this practice complied with European Union law, by means of the above-mentioned references for a preliminary ruling.

• Case C-409/24: The applicant, a hotel establishment, applied the reduced rate of 7% to both accommodation and breakfast and parking services, considering them as a single supply. After tax audits, the German Tax Office (SF) ruled that these additional services should be taxed at the standard rate of 19%, a decision that was upheld by the Saxony Tax Court, as it considered these services to be independent principal supplies.
   

• Case C-410/24 [Blapp]: Relying on the CJEU's Stadion Amsterdam ruling, a boarding house - the claimant - included breakfast in the price of accommodation and applied the reduced rate of 7% to the total turnover. Following the SF's reasoning, the Hessen Tax Court held that the breakfast services provided by the plaintiff were subject to the normal tax rate, and that the rate reduction was limited to “mere temporary rental or accommodation services”. In a reference for a preliminary ruling to the CJEU, the referring court pointed out that the fractioning requirement under German law is intended to safeguard the principle of fiscal neutrality since, in its view, breakfast is taxed at the standard rate, whether it is an independent principal supply or, as in this case, a non-independent ancillary supply.

   

• Case C-411/24: A hotel company, D GmbH & Co. KG, offered guests additional services such as parking, access to fitness and wellness facilities and a wireless local area network (W-LAN) at no extra cost. The company argued that the services were ancillary to the main accommodation service and should therefore be taxed at a reduced rate. However, the Tax Office, relying on German law, upheld the application of the standard rate, considering that such services are not directly linked to the rental.

It should be noted that in previous rulings, such as Commission v France (C-94/09, May 6, 2010), the CJEU admitted a national requirement of fractionation that prevails over the principle of the uniqueness of the service.

However, in subsequent decisions, the Court has departed from this position, as can be seen in the Stadion Amsterdam ruling (C-463/16, January 18, 2018) where it stated that a single supply consisting of two distinct elements, a main element and a secondary element, to which different VAT rates would apply if they were supplied separately, is only taxable at the VAT rate applicable to that single supply, which is based on the main element, even if it is possible to determine the price of each element, which is included in the total price paid by the consumer for the use of that supply.

More recently, in the Finanzamt X ruling (C-516/21, of May 4, 2023), the CJEU rejected an artificial separation of single supplies.  

The awaited interpretation by the CJEU could clarify whether German law complies with EU rules, which could lead economic operators, including in Portugal, to review their commercial strategy.