Ancillary services supplementing the hotel accommodation could be taxed at a reduced VAT rate - BFH ruling XI B 2/21

In Germany, services that involve only accommodation are subject to the reduced VAT rate of 7%. By contrast, breakfast, spa, and other supplies offered together with the accommodation have been subject to the standard tax rate until now, and the remuneration must be apportioned accordingly. This could be contrary to EU law. Germany’s Federal Fiscal Court (BFH) therefore granted a suspension of execution in such a case in its decision of 7 March 2022 (XI B 2/21).

Background: Is uniformity of supply being prioritised?

Components of a single supply can be taxed differently - as the ECJ postulated in the cases Talacre Beach Caravan Sales Ltd. (6 July 2006, C-251/05) and Commission v. France (6 May 2010, C-94/09). Therefore, it appeared unobjectionable that the German legislature, in § 12 (2) No. 11 of the German VAT Code, applies the reduced VAT rate to the accommodation itself, but excludes other supplies supplementing the accommodation. The ECJ ruling in the Stadion Amsterdam CV case (18 January 2018, C-463/16), however, differs. Here, the ECJ ruled that in the case of two service elements that stand in relation to each other as main and ancillary services, the overall VAT rate is based on the main service. It was not permissible to apply two different VAT rates.

In 2021, the V. Senate of the BFH had already submitted a case to the ECJ for a preliminary ruling against this backdrop, a case also involving a single supply and in which the VAT Act stipulates different tax rates for the supply’s individual elements:  the VAT-exempt rental of a property pursuant to § 4 No. 12 Sentence 1 of the German VAT Code, in which operating equipment is excluded from the VAT exemption (26 May 2021, V R 22/20. Our web article on this ECJ submission can be found here).

Transferability to accommodation services

The question arises as to what this all means for accommodation services and the ancillary services directly serving the purpose of the accommodation that are excluded from the reduced VAT rate. Now, finally, the BFH was able to deal with such a case. The case involved a hotel that offered breakfast and access to the hotel's own spa area along with the accommodation and wanted to tax this service package as a whole at the reduced VAT rate. The BFH’s XI. Senate suspended the execution here because it seriously doubted whether the allocation requirement of § 12 para. 2 no. 11 p. 2 of the German VAT Code (UStG) was compatible with EU law with regard to the ECJ decision "Stadion Amsterdam". In doing so, it endorsed the ECJ submission of the V. Senate.

The ECJ's decision is eagerly awaited and could force the German legislature to revise how it deals with both accommodation sales and the rental of real estate with operating facilities. Even if the ECJ concludes, as it did in the Stadion Amsterdam case, that elements of a single supply cannot be taxed differently, each individual case would still have to be examined carefully to determine whether a single supply actually exists because not everything that is billed together automatically meets the requirements of a single supply. If this is not the case, there should be no obstacles to applying different tax rates.

Keep tax assessments open

Taxable persons who provide single supplies, the elements of which would be taxed differently on their own, should (continue to) keep the corresponding tax assessments open if a different VAT treatment than the previous one would be more favourable for them. Given the new BFH ruling, this applies in particular to hotel operators, as considerable tax relief can be expected here.

(Dated: 3 June 2022)