Comments on ECJ C-146/22: Reduced rates – different rates for Hot Chocolate – different rates when hot in coffee house v retail – fiscal neutrality – taxpayer loss

The case concerns a coffeehouse chain in Poland that sells a beverage called ‘Classic Hot Chocolate’.
The tax authority classified it as a supply of goods and ancillary services subject to a reduced VAT rate of 8%, while the taxpayer argued it should be classified as ‘beverages on the basis of milk’ subject to a reduced rate of 5%.
The Court considered whether foodstuffs consisting of the same main ingredient and meeting the same need on the part of the average consumer can be subject to different reduced VAT rates depending on whether they are sold at retail level or prepared and served hot for immediate consumption.
The Court noted that such classification based on ancillary services is not incompatible with EU law, provided that the principle of fiscal neutrality is observed.
The Court gave guidance on whether the beverages have similar properties, meet the same needs of the consumer, and have a decisive influence on the choice of the average consumer.
The Court considered that the difference in preparation and serving is liable to have a decisive influence on the choice of the consumer to purchase one or the other of those beverages.

Source KPMG