In response to the Douai Administrative Court of Appeal’s request for a preliminary ruling, the Conseil d'Etat (France’s highest administrative court) has held the French VAT regime for non-hotel accommodation – subject to VAT when certain services making it akin to hotel accommodation are provided – to be contrary to the EU’s VAT Directive.
According to article 261 D4b of the French tax code, the VAT exemption for occasional, permanent or seasonal lettings of furnished or serviced residential accommodation does not extend to the habitual provision for valuable consideration of such accommodation together with at least three of the following services, provided under conditions similar to those found in a professional hotel establishment: breakfast, regular cleaning of the premises, supply of household linen and customer reception (even if unstaffed).
When applicable, VAT is charged on accommodation services at 10%, in line with the rate for hotel accommodation, and entitles the service provider to deduct its input VAT.
This French regime reflects the transposition of Article 135 (1) (l) and (2) (a) of the VAT Directive into domestic law which provides an exemption for the leasing or letting of immovable property and the provision of accommodation, except in the hotel sector or in sectors with a similar function.
The Conseil d’Etat has held that the Directive requires the criteria laid down by Member States to be such as to ensure that the VAT exemption applies solely to taxable persons who do not pursue an activity fulfilling the same essential function(s) as a hotel business, and who do not therefore represent potential competition for such businesses.
On that basis, it found the French regime to be partially non-compliant with the objectives of Article 135 of the VAT Directive, in that:
- it makes non-hotel accommodation subject to VAT only when three of the four services listed in the French tax code are provided, despite the fact that such accommodation may, even without those services, still represent competition for the hotel sector in certain circumstances,
- but nonetheless stipulates that the exemption does not extend to activities representing potential competition for hotel businesses.
The Court concluded that the French tax authorities (or the tax courts, in the event of a dispute) must carry out a case-by-case analysis to determine whether a furnished accommodation provider represents potential competition for hotel businesses, in view of the conditions they apply – in particular the minimum stay and any services provided in addition to the accommodation itself.
Until such time as the law is amended, the existing French Tax authorities guidelines (BOFiP) remains valid. Accordingly, taxpayers who have followed the letter of the law and the tax authorities’ commentary (ref. BOI-TVA-CHAMP-30-10-50 and BOI-TVA-CHAMP-10-10-50-20) should be safe from challenge for the time being.
We nonetheless recommend that furnished accommodation providers consider what it would mean for their business if it were held to represent potential competition for the hotel sector – not only as regards the application of VAT but also the wider tax implications.
This means considering all conditions attaching to the accommodation and any associated services provided, in particular the services listed under current French law and the minimum stay requirement referred to by the Conseil d'Etat in its preliminary ruling.
Taxpayers who stand to gain from their services becoming subject to VAT can opt for VAT ahead of any change in the law, in accordance with the Directive’s terms.
Our Tax teams are on hand to assist you in reviewing your services and taking action as appropriate.
Conseil d’État, preliminary ruling No. 471877, 5 July 2023
Flash news tax law | VAT: case-by-case analysis required to determine whether accommodation services represent potential competition for hotel businesses | July 07 2023
