CJEU Confirms Allocation of Hotel Services for VAT Purposes

In a judgment of March 5, 2026, combining three joined cases (C-409/24 to C-411/24), the CJEU provided greater clarity regarding hotel services and ultimately confirmed the German tax authorities’ administrative position.

In the case of short-term hotel accommodation, ancillary services such as parking, Wi-Fi, and fitness or wellness facilities may be excluded from the reduced VAT rate and taxed at the standard rate of 19 %, even if they are covered by a single consideration or included in a package price.

Art. 12 (2) no. 11 sentence 2 of the German VAT Act (UStG) reduces VAT to 7 % for the letting of living and sleeping accommodation that an entrepreneur provides for the short-term accommodation of guests. Services that do not directly serve the letting must be separated and taxed at the rate applicable to them – generally the standard VAT rate rather than the reduced rate. Where no separate consideration has been agreed for such services, the allocation can lead to practical difficulties and disputes with the tax authorities. Prior to the CJEU’s decision, it was unclear whether this practice of allocating the consideration was contrary to EU law.

1. Background of the decision

The German Federal Fiscal Court (BFH) had submitted three requests for a preliminary ruling to the CJEU. In all three cases, the question was whether the German provision is compatible with Directive 2006/112/EC (the VAT Directive).
The three underlying proceedings concerned different constellations:
-    In the first case (C-409/24), a hotel offered accommodation including breakfast and parking; the tax office took the view that breakfast and parking should be taxed at the standard VAT rate of 19 %.

-    In case C-410/24, breakfast was included in the accommodation price of a guesthouse on a flat-rate basis, regardless of whether the guest actually consumed it.

-    In the third case (C-411/24), two hotels provided Wi-Fi, parking, as well as fitness and wellness facilities without charging a separate fee.

Referring to the CJEU judgment “Stadion Amsterdam” (C-463/16), the plaintiffs argued that a single supply must be subject to a single VAT rate, meaning that all ancillary services should follow the reduced VAT rate applicable to the principal service.

2. Key findings and decision of the CJEU

The CJEU clarified that the German practice of allocating the consideration is, in principle, compatible with EU law. The key findings of the Court can be summarized as follows:

According to the Court, the VAT Directive grants Member States a margin of discretion. They may limit the application of the reduced VAT rate to specific and distinct aspects of a category of supplies listed in Annex III of the Directive. However, this option is subject to two conditions:

1.    The reduced VAT rate may only be applied to specific and distinct aspects of the relevant category of supplies. This requires that the national legislation contains objective, clear and precise criteria enabling the exact identification of the supplies to which the reduced VAT rate is to be applied.

2.    The principle of fiscal neutrality must be respected. Similar services that compete with each other must not be treated differently for VAT purposes.

In the present judgment, the CJEU considers the German statutory provision and the relevant guidance in the German VAT Application Decree (UStAE) to be “manifestly suitable” for the precise determination required. From the Court’s perspective, fiscal neutrality can also be preserved under the German rules. At this point, the Court refers in its judgment to the view of the BFH, which had not identified a violation of the principle of fiscal neutrality. According to the BFH, the German requirement to allocate the consideration ensures that similar services – such as access to parking spaces – are subject to the same VAT rate, regardless of whether they are provided by a hotel or by another entrepreneur. In this context, however, the CJEU clarified that the assessment of whether the services are interchangeable from the perspective of the average consumer must be carried out by the referring court.

Based on the current situation, it can therefore be assumed that the Federal Republic of Germany has exercised its discretion under Art. 12 (2) no. 11 UStG in a permissible manner. According to the Court, this is the decisive difference from the CJEU judgment “Stadion Amsterdam” (C-463/16): the Netherlands had not made use of this margin of discretion. However, it remains irrelevant whether the supply, despite consisting of different components, is to be regarded as a single supply.

3. Practical consequences

With the CJEU judgment, the current administrative practice regarding the allocation of hotel services is, for the time being, confirmed as compatible with EU law. For practice, this means in particular:

-    Although the judgment creates greater legal certainty for the German hospitality sector, the administrative effort required to allocate services and prices remains: hotels and similar accommodation providers must continue to distinguish between the accommodation service subject to the reduced VAT rate and ancillary services that do not serve the letting “directly” and are therefore subject to the standard VAT rate. The list of qualifying and non-qualifying services in Section 12.16 (4) and (5) of the German VAT Application Decree (UStAE) must be observed.

-    In the case of package offers, the portion of the consideration attributable to ancillary services must be allocated appropriately and documented. Hotel operators should therefore review their pricing structures and billing systems to ensure that the allocation between reduced-rated and standard-rated services is done correctly. Where a separate fee is agreed for ancillary services subject to the standard rate, this must be taxed accordingly.
For package offers, the simplification rule in Section 12.16 (12) of the German VAT Application Decree (UStAE) should also be considered. According to this rule, the tax authorities do not object if:

•    services that are not eligible for the reduced rate are combined in the invoice into a single item (e.g., “business package” or “service package”) and the portion of the consideration attributable to these services is shown as one amount;
•    the portion of the consideration attributable to these services is then calculated at 15 % of the package price.

In this context, the following should be taken into account:

•    This simplification rule does not apply where a separate consideration has been agreed.
•    The percentage rate was reduced by five percentage points as of January 1, 2026. This is due to the fact that the food component of breakfast has (once again) qualified as a supply subject to the reduced rate since the beginning of the year.
-    For breakfast, which was also at issue in cases C-409/24 and C-410/24, the reduced VAT rate did not apply previously. Taxpayers who, in previous assessment periods, applied the reduced VAT rate uniformly to these and other standard-rated services by referring to the “Stadion Amsterdam” judgment should critically reassess their chances of success and the implications of the CJEU judgment. Prompt action may therefore be required.

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