Excluding the application of the single supply rules

The AG has opined that German VAT rules which limited the reduced rate of VAT for short-term accommodation, excluding other ancillary aspects of such supplies, was not contrary to EU law: J-GmbH v Finanzamt K and others (Joined Cases C‑409/24 to C‑411/24). It was clear that a Member State is entitled to limit the reduced rate to specific services, excluding from the scope of the reduced rate other services which might otherwise be treated as ancillary to that main supply (and normally taxable at the same rate).

Background

The case concerns German provisions which applied a reduced rate of VAT to supplies of accommodation. However, the provision specifies that the reduced rate "shall not apply to supplies of goods and services which are not directly used for the letting, even if they are covered by the rental charge".

The referred cases cover a range of circumstances where other services were provided alongside the accommodation. The services included meals, wi-fi, parking and access to healthcare facilities. Some of these were provided "free" with the accommodation and others were simply not separately itemised (such as bed and breakfast rates). Some were optional extras, whilst others involved no optionality.

In these cases, the taxpayers all argued that where the additional services were ancillary to the supply of accommodation, then there was simply a single principal supply of reduced rate accommodation under the Card Protection approach and the German rules seeking to treat different parts of the single supply at different rates was contrary to EU law. The German tax authorities rejected that argument and the matter has been referred to the CJEU.

AG opinion

The AG has opined that Germany is entitled to restrict the reduced rate to only part of a single supply and require other aspects of the single supply to be taxed at higher rates.

The AG has noted that the decision in Commission v France (Case C-94/09) (the French undertakers case) held that a Member State could introduce a reduced rate only for part of a composite supply, provided that in doing so it respected the purposes of the reduced rate and doing so complied with the principle of fiscal neutrality. The AG considered that nothing in the case law since affected that analysis.

Doubt had been raised by the decision in Stadion Amsterdam (Case C-463/16). The referring court noted that parts of that case suggest "that 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. The [court] is now concerned that this could imply that differing VAT rates for components of a single supply are 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 AG rejected this analysis considering that the Stadion Amsterdam case (where the package was one indivisible whole) could be distinguished from the supplies in this case which were not necessarily indivisible.

The AG also noted that the facility to apply reduced rates to some of the ancillary supplies in this case (including food and fitness centres) existed and Germany had chosen not to apply them. As such, the German legislation was simply exercising its discretion to apply reduced rates only to concrete and specific aspects of the category of supply of short-term accommodation. Moreover, by limiting the reduced rate to the accommodation aspects only, the AG noted that the policy contributed to fiscal neutrality (as other suppliers of parking, food etc) were not disadvantaged in comparison to those providing such services in conjunction with accommodation.

Comment

The opinion that Germany is entitled to restrict the reduced rate to only specific parts of a supply seems entirely in line with the exiting case law of the CJEU in the French undertakers case and Talacre Beach which make it clear it is possible to limit the application of a single ratre of VAT to a composite supply, but only where there are "concrete and specific aspects" of a supply for which legislation has provided a particular VAT treatment. What is slightly more surprising is that the AG did not simply emphasise this case law in the conclusion.

Indeed, there are other surprising aspects to the opinion. The distinction drawn with the Stadion Amsterdam case seems unnecessary (and quite possibly incorrect). The better distinction in that case was that the Dutch legislation simply did not seek to limit the reduced rate to a concrete and specific aspect of the single supply.

In addition, the AG noted in preliminary remarks that it was questionable whether some of the services in these cases amounted to taxable transactions at all. This was on the basis that they were provided, in many cases, free of charge. Certainly in the context of promotional supplies of goods, both the UK courts and the CJEU have held that items provided "free" were not in reality provided for no consideration for VAT purposes. Whether, therefore, free access to a gym or free parking, breakfast or wi-fi should automatically be treated as provided for no consideration in the context of paid hotel accommodation is, at the very least, an interesting question.