Briefing document & Podcast: ECJ C-409/24 to 411/24 – AG Opinion – VAT on Short-Term Accommodation and Ancillary Services

Analysis of Joined Cases C-409/24 to C-411/24: VAT Treatment of Ancillary Services in Short-Term Accommodation

Introduction:

This briefing document analyzes the core issues, key arguments, and potential implications of Joined Cases C-409/24 to C-411/24, currently before the Court of Justice of the European Union (CJEU). These cases concern the VAT treatment of services ancillary to short-term accommodation (e.g., breakfast, parking, Wi-Fi, fitness/wellness facilities) in Germany, specifically whether they should be taxed at the standard VAT rate separately from the accommodation itself, or benefit from the same reduced rate. The Bundesfinanzhof (BFH), the referring court, seeks clarification on the compatibility of German national law with EU VAT law, especially regarding the interpretation of the VAT Directive and the principle of a “single supply.”

I. Core Issues and Legal Framework:

Central Question: Whether EU VAT law (specifically Article 24(1) and Article 98(1) and (2) of the VAT Directive, read in conjunction with Point 12 of Annex III) precludes a national provision like Paragraph 12(2)(11) of the German Umsatzsteuergesetz (UStG), which requires separate taxation (at the standard rate) of ancillary services provided in conjunction with short-term accommodation, even if those services are dependent and ancillary.
German UStG: The German UStG generally sets the standard VAT rate at 19%. However, it applies a reduced rate of 7% to short-term accommodation and campsites. Paragraph 12(2)(11) UStG stipulates this reduced rate, but the critical second sentence limits this reduction to “services which are not directly used for the letting, even if they are covered by the rental charge,” effectively excluding many ancillary services. As the Advocate General notes, this “limits the application of a reduced rate only to services of accommodation, requiring that other supplies not directly used for letting be taxed separately, even if they are paid for as part of a single remuneration for accommodation.”
“Single Supply” Principle: This principle dictates that a transaction consisting of several elements should not be artificially split. If services are closely linked and form a single, indivisible economic supply from the average consumer’s perspective, they should be treated as a single supply for VAT purposes. The question arises: do bundled services, like accommodation with breakfast, constitute a single supply eligible for a single (reduced) VAT rate?

II. Case-Specific Details and Arguments:

Case C-409/24 (J-GmbH v Finanzamt K): J-GmbH operates a hotel and restaurant and had been applying the reduced rate to accommodation, breakfast, and parking, treating them as a single supply. The Finanzamt K (Tax Office K) determined that breakfast and parking should be taxed at the standard rate of 19%. J-GmbH argued that the breakdown of services is incompatible with EU law, referencing the Stadion Amsterdam judgment. “The applicant in the main proceedings considers that the judgment of 18 January 2018, Stadion Amsterdam, prohibits the artificial splitting of principal and ancillary supplies, and therefore persists in its assertion that breakfast and parking should be taxed at the reduced rate of 7%.”
Case C-410/24 (D v Finanzamt F): D operated a guesthouse offering accommodation and breakfast at an all-inclusive price (guests could not opt out of breakfast). D requested an amendment to the tax assessment based on the Stadion Amsterdam judgment, arguing that all turnover generated in connection with the guesthouse should be subject to the reduced rate. “Guests who did not take breakfast also paid the full price, with one single exception.” D argues that breakfast is a dependent supply ancillary to the provision of accommodation.
Case C-411/24 (D GmbH & Co. KG v Finanzamt A): D GmbH & Co. KG operated hotels offering accommodation, parking, Wi-Fi, and fitness/wellness facilities (the latter three without separate charges). They initially declared the parking spaces as a supply ancillary to the provision of accommodation subject to reduced taxation. The Finanzamt A (Tax Office A) disagreed, applying the standard rate to parking, Wi-Fi, and fitness/wellness facilities. D GmbH & Co. KG argues that those additional services are directly used for letting, and that the court did not take account of the principle of a single supply as recognized by EU law.

III. Conflicting Interpretations and the Stadion Amsterdam Precedent:

Bundesfinanzhof’s Initial View: The BFH initially believed the German breakdown requirement was compatible with EU law because Member States have the discretion to apply reduced VAT rates to specific aspects of a category of supplies, as long as they comply with fiscal neutrality. They believed the breakdown requirement prevents distortion of competition.
Stadion Amsterdam Judgment: Paragraph 33 of the Stadion Amsterdam judgment has caused the BFH to question its initial view. That paragraph stated: “a single supply comprising both a principal and an ancillary element, which would otherwise be subject to different VAT rates if supplied separately, must be taxed solely at the rate applicable to the principal element.” This raised concerns as to whether ancillary services must automatically benefit from the reduced rate when they are part of accommodation, potentially overriding the national breakdown requirement.
BFH’s Concerns: The BFH is concerned that differing VAT rates for components of a single supply might be prohibited under EU law, potentially meaning that ancillary services should also benefit from the reduced rate when they are part of a single supply of accommodation, overriding the national breakdown requirement. The BFH notes that this view has a difference of opinion within Germany.

IV. Positions of Key Parties:

The German Government: Argues that the VAT Directive doesn’t prevent national legislation from requiring the separate taxation of services. They believe Member States have the discretion to selectively apply reduced rates to concrete and specific aspects of a supply category. The German government considers “that the VAT Directive does not preclude the requirement under national law for those services to be separated for VAT purposes, even if booking a room with breakfast included is the only option available to customers.”
The European Commission: Contends that ancillary services are closely linked to the main service (accommodation) and should therefore be taxed at the same reduced rate. “The Commission is also of the view that services provided in addition to accommodation must, given their ancillary nature, be taxed at the same rate as the principal supply.”

V. Advocate General’s Analysis:

Two Key Conditions: The Advocate General emphasizes that Member States, when introducing reduced VAT rates, must satisfy two conditions:

They must isolate for that purpose only concrete and specific aspects of the category of supply at issue.
They must comply with the principle of fiscal neutrality.

Justification for Separate Treatment of Breakfast: The Advocate General argues that accommodation and breakfast do not necessarily represent an indivisible supply. Many hotels offer these services separately, indicating they are not inherently inseparable. While consumers may view an all-inclusive package as a single supply, this does not prevent the national legislature from narrowing down the reduced rate to an identifiable and separable supply like accommodation alone, especially when guided by tourism policy considerations. “Even if, in the eyes of a consumer, accommodation that does not offer the possibility to opt out of breakfast may therefore be seen as a single supply, it is not a sufficient reason to prevent the national legislature from narrowing down the reduced rate to an identifiable and separable supply.”
Compliance with Fiscal Neutrality: The Advocate General contends that taxing ancillary services at the standard rate promotes fiscal neutrality. If breakfast, for example, were taxed at the same reduced rate as accommodation in a hotel, other establishments offering breakfast (such as restaurants or cafes) would be placed at a competitive disadvantage because their breakfast service would be subject to the standard rate. By taxing these services at the standard rate regardless of where they are offered, the Advocate General believes the German legislation prevents lodging establishments from being given an unfair advantage over other operators offering comparable services. “It prevents lodging establishments from being given an unfair advantage over other operators offering comparable services, such as bars, brasseries, car parks, wellness centres, internet cafés, and so on.”
Distinction from Stadion Amsterdam and Finanzamt X: The Advocate General argues that in Stadion Amsterdam there was no prerogative for the national legislature to confine reduced VAT to a single element of a composite supply, unlike in the present case where such discretion exists. The Advocate General further notes that Finanzamt X concerned VAT exemptions provided for by the VAT Directive itself (not reduced rates) and that in that case, the ancillary service was considered inseparable from the principal supply, unlike in the present cases.

VI. Potential Implications:

The CJEU’s ruling in these cases will have significant implications for the VAT treatment of ancillary services provided by hotels and similar establishments across the EU. A ruling in favor of the German position would allow Member States greater flexibility in applying reduced VAT rates selectively, while a ruling in favor of the Commission’s view would mandate a more uniform application of reduced rates to ancillary services, potentially affecting pricing strategies and competition within the hospitality sector. The ruling will clarify the scope of the “single supply” principle and the extent to which national legislatures can deviate from it when applying reduced VAT rates.

VII. Conclusion:

Joined Cases C-409/24 to C-411/24 raise fundamental questions about the balance between national fiscal autonomy and the harmonization of VAT rules within the EU. The CJEU’s decision will provide important guidance on the interpretation of the VAT Directive and the principle of fiscal neutrality in the context of the rapidly evolving hospitality industry.