Make protective claims now: VAT on hotel and restaurant no-show cancellation fees
On 18 May 2005 the French supreme court (Conseil D'Etat) referred to the European Court of Justice, a case* concerning whether VAT is due on hotel and restaurant no-show and cancellation fees. If the taxpayer is successful in the case you could save up to 15% of your income on no-show/cancellations fees. In 1993, the UK High Court reviewed the matter in the case of Customs and Excise Commissioners v Bass plc [1993] STC 42, and concluded that VAT was due on such charges.
Essentially, the taxpayer's argument is that VAT is a tax on the delivery of goods or performance of a service. In the event of a no-show or cancellation, there is no performance as such, and any retained payments simply compensate for losses flowing from the party not completing the contract. There is no consumption, therefore VAT cannot be payable. The outcome of the case is not expected for two or three years, so it is important to protect your position now so that you can claim back VAT if the taxpayer is successful.
What should you do now to protect your position?
The three year capping provisions apply, so you should identify those areas of your business where no-show or cancellation charges are being made, on which you are currently accounting for VAT. These will include hotel, restaurant, seminar, conference fees, and those involving consumer goods such where there is a finance house deposit. You should then make a protective claim as soon as possible for the last three years, asking for the claim to be stood over pending resolution of the "Eugenie-les-Bains Spa case at the European Court of Justice, referred by France on 18/5/05". N.B. we do not have a case reference number at present but will advise when available. You should then make regular protective claims for VAT accounted for on no–show and cancellation fees e.g. on a quarterly or annual basis. We are able to advise on how you should do this.
In addition, your position could be strengthened if you revise your contracts with a view to adopting an outcome that leads to a successful claim as a result of the pleadings in this particular case.
How can we help?
Our associated law firm CMS Bureau Francis Lefebvre have made representations which were instrumental in influencing the court to have the case transferred to the ECJ. Through the CMS group understanding of the issues, CMS Cameron McKenna can help on the following:
- In the making of any claims, and
- In ensuring contracts are written in a way that would ensure claims would be met if the Appellant wins on its arguments.
We are planning a practical briefing on the issue - if you are interested in receiving details about this let Suzanne Pearce know at suzanne.pearce@cms-cmck.com. For further information on the case or if you would like assistance in identifying the categories where you may be eligible to make a claim or in reviewing your contracts, please contact CMS Cameron McKenna VAT Consultant Peter Mason on +44 020 7367 2209 or at peter.mason@cms-cmck.com or your usual CMS Cameron McKenna tax contact.
* The case is called: SOCIETE THERMALE D'EUGENIE-LES-BAINS versus FRENCH MINISTRY OF ECONOMY, FINANCE AND INDUSTRY; Case no 263653 of 18 May 2005.
