One Accommodation Package, Two VAT Rates? The ECJ’s Decision Explained

For many businesses in the accommodation sector, understanding the correct VAT rate to apply to ancillary services provided in combination with accommodation services has become increasingly difficult. Hotels, guesthouses and serviced accommodation providers frequently supply additional, ancillary services alongside overnight stays, such as breakfast, parking, Wi-Fi, gym access or wellness facilities, often included as part of a single, packaged price.

In a situation whereby accommodation services are subject to a reduced VAT rate, a common issue faced by businesses is whether these non-accommodation ancillary services should follow the same VAT rate of the accommodation itself, or whether they must be separated and taxed at their own applicable VAT rate, even if they are sold as part of a bundle or ‘all-inclusive’ package.

This issue was recently considered by the European Court of Justice (ECJ) in the joined Cases C-409/24 to C-411/24. The cases arose from disputes in Germany, where accommodation benefits from a reduced VAT rate, but the ancillary services provided do not.

The ECJ ultimately confirmed that Member States may exclude non-accommodation ancillary services from the reduced VAT rate, even where those ancillary services are bundled into a single price with the reduced rated accommodation. However, the Court also stressed that any distinction must be applied consistently, transparently and in accordance with the principle of fiscal neutrality.

Challenges for Providers

 From a practical perspective, this creates a real, practical challenge for businesses. Many providers market accommodation as an “all-inclusive” or bundled service, yet may now need to separately identify and account for elements of this bundled service which may be subject to different VAT rates. Incorrect VAT treatment can expose businesses to underpaid VAT assessments, interest and penalties.

A Clear Understanding and Structure is now Critical

 The judgment highlights the importance of understanding how supplies are structured from a VAT perspective to ensure they remain compliant with VAT regulations as Member States have the discretion to exclude ancillary services from the reduced VAT rate which may be applied to accommodation, even where these ancillary services are sold as part of a package.

In order to identify areas of potential exposure, businesses should carefully assess:

• whether the supplies constitute a single supply or multiple separate supplies
• how package pricing and invoices are presented
• whether the ancillary services are subject to the different VAT rate than the accommodation services
• whether the business is correctly accounting for and reporting the VAT in bundled packages
• whether it may be beneficial to implement an automated VAT determination solution within their ERP system to ensure VAT compliance

 A Forward-Facing Approach to Ensure VAT Compliance

Understanding the correct VAT treatment for bundled supplies continue to cause significant confusion for businesses and often attract scrutiny from tax authorities across the EU, particularly in sectors such as hospitality, leisure and tourism.

The strongest solution to avoid this is to ensure your business has strong, robust and clear systems in place, such as an automated VAT determination solution within your ERP system, to ensure these supplies are treated accurately and consistently from a VAT perspective. This is where the assistance of experienced VAT specialists can provide much needed guidance to ensure your business remains compliant with ever-evolving VAT regulations.

Here at Meridian, we have extensive experience in supporting businesses with implementing automated VAT determination solutions within their ERP systems and providing tailored advice to ensure compliance with supplies of accommodation and ancillary services with ever-evolving VAT regulations.

If you require any assistance in understanding the correct VAT treatment of accommodation and/ or ancillary services, please feel free to reach out and we would be delighted to help!