Reservations may be cancelled nowadays due to COVID-19. In some cases, the customers may have to pay a cancellation fee to the hotel, travel agency, etc. This may lead to the question if the cancelation fees are subject to VAT.
We have made an overview/ analysis of two ECJ cases where this question was adddressed. For our analysis, click here: Analysis CJEU cases cancellation fees
The cases concerned are Société thermale d’Eugénie-les-Bains (C-277/05) and Air France-KLM and Hop!-Brit Air SAS (C-250/14 and C-289/14) which dealt with the topic.
The relevant article in the EU VAT Directive is Article 90 (under the section of ”Taxable Amount”:
“Art. 90:
1.In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.
2.In the case of total or partial non-payment, Member States may derogate from paragraph 1.”
Outcome of the cases
The decision in both cases is different due to the facts and circumstances. The issue at stake was whether the amount already paid for the reservation was a taxable transaction or outside scope of VAT. In other words, whether teh ampunt already for the rservation was deemed to include VAT or not.
Société thermale d’Eugénie-les-Bains (C-277/05)
The decision was that the reservation was outside scope of VAT.
The obligation to make a reservation arises from the contract for accommodation itself and not from the payment of a deposit, The deposit was contractually agreed and was only part of the total price
Link to Curia
Air France-KLM and Hop!-Brit Air SAS (C-250/14 and C-289/14)
The decision was that the purchase of an airline tickes was a supply of services, subject to VAT.
The obligation to transport the passenger arises from the payment of the price of the ticket, the sale is final and definitive. The full price of the ticket was paid incl. VAT.
Link to Curia
