VAT rate for ancillary supplies to accommodation services: BFH submissions to ECJ, published on 13 June 2024

Background facts

According to § 12 (2) no. 11 sentence 2 UStG, the reduced VAT rate for accommodation services does not apply to services that do not directly serve the purpose of providing the accommodation, even if these services are included in the accommodation fee. The XI Senate of the BFH has so far interpreted this legal provision to mean that two different VAT rates must be applied. This splitting requirement takes precedence over the principle which requires an ancillary supply to be taxed in the same way as the main supply. This means that services that do not directly serve the purpose of letting are taxed at the standard rate, even if they are ancillary to the letting. This principle is also assumed by the tax authorities in the UStAE.

Question referred

The BFH would like to know whether the splitting requirement is contrary to EU law insofar as it leads to a different treatment of the main supply and the ancillary supplies.

First, in the three orders for reference, the Senate dealt with the preliminary question of whether car parks, breakfast, Wi-Fi, as well as fitness and wellness facilities are ancillary services to the accommodation service at all. For the BFH, the decisive factor is whether these services can be added or removed, thereby increasing or decreasing the remuneration accordingly. The BFH came to different conclusions in the three cases based on the specific facts of each case,

Regarding the splitting requirement itself, the Senate had seen its previous stance confirmed by ECJ ruling C-94/09 of 6 May 2010. The case concerned infringement proceedings in which the EU Commission accused France of only applying a reduced VAT rate to the transport of corpses by funeral directors, but not the associated ancillary services, in violation of EU law.  The ECJ had ruled in that case that the reduced VAT rate may be limited to some aspects of a category of supplies, even in the case of a uniform supply, if this does not jeopardise fiscal neutrality.

However, the ECJ rulings in the cases "Stadion Amsterdam" (C-463/16 of 18 January 2018) and "Finanzamt X" (C-516/21 of 4 May 2023) give rise to doubts.  The ECJ ruled that, in the case of two service components that are related to each other as a main service and the ancillary services, the overall VAT rate is based on the main service. It is not permissible to apply two different VAT rates. However, the BFH does not tend to see this as a deviation from ECJ ruling C-94/09 on funeral services, as it understands the ECJ to mean that selective application of the reduced VAT rate is still possible if it does not entail any risk of a distortion of competition. However, this interpretation of the two judgements has left some doubts; it is also conceivable that the ECJ specifically wanted to exclude the application of two VAT rates to the main and ancillary service. In this case, § 12 (2) no. 11 sentence 2 UStG would infringe on EU law.

Practical impacts

In view of recent ECJ case law, there is considerable doubt regarding the splitting requirement for accommodation services and this must be reviewed. However, it is surprising that the BFH tends to believe that it could be in compliance with EU law under certain circumstances.  Whether there is a risk of distortion of competition would have to be examined on a case-by-case basis, which would make it considerably more difficult to apply the law with certainty.

The hotel industry is waiting impatiently for a decision. As invoices with an open VAT statement do not have to be issued to private customers, some hotels have refrained from doing so for some time now so that they can correct the VAT quickly and easily if the legal situation should one day be clarified in their favour. However, the Federal Fiscal Court's decisions on the referral remind us once again that the supply in question must truly be an ancillary supply to the accommodation to benefit from the reduced VAT rate. Care must be taken here to ensure that it cannot be added or removed without affecting the fee.