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An analysis by Flick Gocke Schaumburg, Taxand Germany
In Germany, short-term accommodation benefits from a reduced VAT rate of 7%, but questions have arisen over whether ancillary services – such as breakfast, parking, Wi-Fi, or wellness facilities – must be taxed separately.
Rainald Vobbe and San Kim from our German firm Flick Gocke Schaumburg have published an article analysing this question after the German Federal Fiscal Court referred this issue to the European Court of Justice (ECJ) in three cases.
You can read the full analysis below:
In Germany, short-term accommodation is subject to the reduced value-added tax (VAT) rate of 7% as opposed to 19%. However, Germany’s Federal Fiscal Court (Bundesfinanzhof – BFH) referred a question to the European Court of Justice (ECJ) on whether ancillary services can also be subject to the lower VAT rate. Advocate General Ćapeta has now issued an Opinion in three joined German cases.
ECJ referral on the breakdown requirement for accommodation services
Essentially, what is at issue is whether ancillary services provided alongside the letting of accommodation (such as parking, breakfast, Wi-Fi or wellness facilities) must always be taxed separately – regardless of whether they would normally follow the VAT treatment of the principal supply. The ECJ was therefore asked to examine whether the domestic rules that provide for a breakdown between the principal and ancillary supplies (such as Sec. 12(2) no. 11 of the German VAT Act [Umsatzsteuergesetz – UStG]) are compatible with EU law.
The cases in detail:
The Advocate General then responds to Case C‑410/24 concerning the provision of breakfast, for consideration, which could not be opted out of. Where consideration is paid (such as for breakfast), the Advocate General concludes that a national requirement to break down charges does not go against the VAT Directive.
EU Member States are authorised, according to the Advocate General, to apply reduced rates selectively to certain aspects of a particular category. Further, she continues, in order to promote tourism, the German legislature opted for the reduced VAT rate for short-term accommodation, but not for the supply of breakfast. Accordingly, breakfast, as an ancillary service, is not inseparable from the principal supply of accommodation. On the question – answered in the negative by the ECJ – of whether a breakdown requirement may be laid down in the context of VAT exemptions, she says the application of reduced rates lies within the discretion of EU Member States to confine reduced VAT to a single element of a composite supply.
Finally, the Advocate General points out that the breakdown requirement prevents a hotel from having a competitive advantage over standalone businesses that offer breakfast, wellness facilities or car parking without associated accommodation.
Consequences
Given this is merely an Opinion, the ECJ’s final ruling must be awaited. In practice, therefore, there is still uncertainty as to how far the breakdown requirement will extend in individual cases and whether the ECJ will formulate any restrictions (e.g., for indirectly related services or tightly bundled supplies).
However, should the ECJ agree with the Advocate General’s Opinion, the breakdown requirement will remain in place with regard to the tax rate reduction under Sec. 12(2) no. 11 UStG, even if ancillary services generally share the fate of the principal supply and must be treated the same way. This will then apply at least to services for consideration.
According to the Advocate General, additional services that are not charged separately are not taxable. She does not analyse the possibility of breaking down the all-inclusive price; part of the all-inclusive price could conceivably be subject to the reduced VAT rate as consideration for the letting of accommodation, while another part could be subject to the standard rate.
Hotels and guesthouses that currently offer all-inclusive prices (accommodation including breakfast) without breaking down the components should consider whether they need to adjust their contractual, invoicing and calculation practices.
It is conceivable that separate service components will have to be shown transparently in the future in order to fulfil the breakdown requirement.
Conclusion
The Advocate General’s Opinion in Cases C-409/24, C-410/24 and C-411/24 signals that the ECJ could soon confirm that principal and ancillary accommodation services will have to be broken down. In particular, the Advocate General does not see any obstacles under EU law to a national obligation to break down paid ancillary services such as breakfast.
For accommodation providers, this means reviewing strategies and making preparations now – particularly with regard to service and contract design, invoicing arrangements and accounting. Once the ECJ ruling is available, we will see how the Court strikes the balance between tax incentives for tourism and competitive neutrality.
With regard to breakfast, however, the situation is likely to ease from 2026, as the VAT rate for restaurant services excluding drinks will be reduced to 7%. Beverages with a high milk content may be exceptions to this rule. For hotels, this would mean drinks may also be treated separately for VAT purposes, or even supplied free of charge.
For the time being, we note that an ancillary service that shares the tax treatment of the principal supply would nevertheless again be broken down by tax rate, which represents a deviation from the general VAT system. It is therefore hoped that this breakdown requirement will continue to be applied only to a very limited extent, even after the ECJ’s ruling.
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