VAT on accommodation services : invoicing of no show

On October 9, 2024, the French Council of State issued two decisions concerning the application of VAT on hotel rooms billed to customers in the event of no show and failure to cancel the reservation within the deadline: case No. 472257 (Hôtellerie Paris Eiffel Suffren) and case No. 489947 (Accorinvest).

These decisions comply with the previous case law of the Court of Justice of the European Union, and they ensure the uniform treatment of VAT within the EU in relation to unused services:

• The contractual lump sum indemnity conserved by the service provider in the event of client’s cancellation within the agreed deadline represents a non-taxable compensation for the loss (similar to deposits received by the Société thermale d’Eugénie-les-Bains for cancelled hotel stays:  Case C-277/05)

• The price of the hotel room, of the stay or of other supplies invoiced to the customer in case of no show represents financial consideration for the specific service made available to the customer and chargeable with VAT regardless of its actual use by the latter (similar to non-refundable airline tickets for domestic flights subject to the local VAT in cases C-250/14 and C-289/14 of Air France-KLM and Hop! – Brit Air SAS)

According to these decisions, the non-taxable indemnity for cancellation relates to services cancelled by customers within the contractual deadline.

On the other hand, the taxable invoicing of no show fees relates to:

• Services not cancelled by the customer
• Services cancelled out of time
• Non-refundable services

For the correct VAT treatment, it is important to ensure the accurate wording of contracts, purchase orders, general terms and conditions, and to make clear distinction between the consideration (room price) and the indemnity (a lump sum amount without direct link to the service). These two concepts may be retained or rejected based on their nature and not solely on the terminology used (see the case C-295/17 of MEO).

The latest decisions of the French Council of State can impact companies willing to exercise their right to deduction or refund of the French VAT incurred on accommodation services for third parties. The VAT unduly applied on cancellation indemnity cannot be claimed back directly from the competent tax authority, but only from the supplier. This concerns also the  reclaim of foreign VAT on refundable accommodation services purchased within other EU Member States, according to the related CJEU rulings.