Consumption on the spot: Restaurants in shopping malls - BFH Ruling V R 42/20

The supply of food and beverages can be considered either a supply of goods or a supply of service. As a supply of goods, it may be subject to the reduced VAT rate, but as a "restaurant service" the standard VAT rate applies. In the case of a normal restaurant with waiting staff and a tablecloth, the distinction is obvious – but what about today’s many fast-food alternatives? The BFH (Bundesfinanzhof = Germany’s Federal Fiscal Court) dealt with the issue of a food court in a shopping centre in its decision dated 26 August 2021, published on 2 December 2021 (V R 42/20).

The serving of meals is considered a service if the focus is primarily on providing a service 

ECJ case law (most recently on April 22, 2021 – C-703/19), states that in the case of a restaurant service, the qualitative aspects of the service aspect must far outweigh the other aspects, and the customer must be provided with infrastructure, or, in accordance with Art. 6 (1) VAT Regulation, sufficient supplementary services to facilitate consumption on the spot. Infrastructure provided by a third party only plays a role if it can be allocated to the supplier. The deciding factor is how the average consumer views this. 

Facts of the case: A fast-food restaurant in a shopping centre with a food court 

The case involved in the BFH ruling of August 26, 2021 dealt with a fast-food restaurant in a shopping centre. The restaurant operator did not offer its customers a place to consume the food they had purchased. However, there was a food court, managed by the shopping centre operator, that provided the customers of various restaurants with tables and chairs for consuming their food. The contract between the restaurant operator and the shopping centre operator Allowed for this use. 

BFH decision: Even a food court over which the restaurant operator has little influence can be considered sufficient  

The BFH concluded (as did the financial court previously) that if the availability of a food court in the shopping centre for customers to consume their food is a key element of the services provided, this can lead to it being considered a supply of service. The fact that there were no  waiting staff and that the customers had to carry their food to the food court’s tables and chairs themselves was irrelevant - as was the fact that the food court had a limited capacity and was also used as a place to wait or meet others. The BFH also ruled that the restaurant operator had to accept responsibility for the food court, even though the restaurant operator‘s contract with the shopping centre operator did not give it any specific right to allocate, plan, issue rules, or designate individual seats in the food court, nor did it own these.   

In the end, the deciding factor was how the average consumer would view the situation. The BFH argued that the customers are unaware of the agreement between the shopping centre operator and the fast-food restaurant, and that the average consumer simply assumes that the food court is part of the shopping centre unless the circumstances suggest otherwise that the customers of the fast-food restaurant have the right to use the food court. For example, if the fast-food restaurant provides the customer with a tray to carry the purchased food, the customer will assume that they are allowed to consume the food at the adjacent food court. However, the BFH could not reach a decisive conclusion because the financial court did not have sufficient findings regarding the use of trays.  The matter was therefore referred back to the financial court.  

The status of food courts will soon be clarified, but difficulties in practice remain an issue 

The BFH was able to deal with a very real-world case here, as shopping centres with food courts are increasingly common everywhere - and have been for many years - and the VAT treatment of these is an ongoing issue. Because the food court belongs to the shopping centre but can be used by the customers of several restaurants, there so far hasn’t been a clear distinction between a restaurant’s own infrastructure and that of a third party such as the shopping centre operator. Unfortunately, the BFH could not finally reach a decision on the case due to a lack of sufficient findings. It appears that the financial court will reach a decision on whether or not the use of trays indicates a restaurant service, with the result being that it will take the view that a restaurant service was provided.  

However, in cases that are not 100% the same as the one decided, the vague definition of what constitutes an "average consumer" will continue to add uncertainty. In its decision dated August 20, 2020 (8-K-1092/17), the financial court of Cologne asked the ECJ to further clarify the definition of what constitutes the "perspective of the average consumer" in a different context. Hopes are that the ECJ will satisfy this request. 

Important to know: The infrastructure provided only results in a supply of service if the customer actually uses it. If the fast-food restaurant is open at times when the food court is closed, the reduced VAT rate applies to the sale of the food. Otherwise, the question "For here or to take away?" and pressing a corresponding button in the POS system remains the (cumbersome and error-prone) method of choice. The persistent efforts of DEHOGA (Germany’s hotel and restaurant association) to persuade the legislature to introduce a uniform reduced VAT rate for restaurant sales have so far been unsuccessful.  

(Dated: 31.01.2022)