Does the categorization of an accommodation matter for VAT purposes?
C‑733/22. – Valentina Heights EOOD | The reduced VAT rate related to accommodation services may not depend on the existence of a certification in the category.
In the present case, a Bulgarian company rented a multi-apartment building from individuals and utilized it for commercial accommodation services. According to Bulgarian law, the accommodation service falls under the reduced 9% VAT rate, but one of the conditions, among others, is that the service provider possesses certification for categorization.
The accommodation operated in the „guesthouse” category from February 2013, and in November 2016, the company applied for a higher categorization. However, the administrative procedure related to this request was prolonged. In September 2020, the company received only temporary category certification, and in March 2019, the authority withdrew the category certification issued for the guesthouse. Thus, despite the continuous operation of the accommodation, there were periods when the company did not possess any category certification. The Bulgarian tax authority, for this period, considered the general (20%) VAT rate applicable and established a tax shortage accordingly. The European Court clarified that the VAT Directive excludes accommodation services from VAT-exempt letting of property, and the definition of „accommodation service” is determined by the member states themselves. In connection with this, the requirement is that the VAT-exempt letting of property must be distinguishable from taxable accommodation services.
According to the European Court, the categorization under Bulgarian tourism regulations does not ensure clear differentiation. The court further stated that the principle of fiscal neutrality is violated if the categorization for the preferential VAT rate of accommodation services depends on the existence of certification. For the average consumer, the crucial factors are the level of service and feedback from other guests, rather than the categorization. In the case of a continuously operating accommodation at the same level, the absence of category certification temporarily should not influence the guest’s decision. The Hungarian VAT law does not contain a definition for commercial accommodation services, and there is no reference to NACE codes either. Therefore, in assessing whether the preferential 5% VAT rate is applicable, one must consider the actual content of the service. In Hungary, a problem similar to the one in the legal case is unlikely to arise.
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