Council of State finds VAT exemption conditions incompatible with EU VAT Directive
Short term home sharers on platforms such as Airbnb are likely to face tighter rules on their VAT liability. Currently, they are exempted from VAT if the provider less than three of the following services as part of the agreement:
- Breakfast;
- Cleaning;
- Bed linen; or
- Customer reception.
This is provided for in Article 261 D of the French General Tax Code. The in effect makes short-term home rental exempt from 20% French VAT. This puts competing hotels at a tax disadvantage, triggering this review.
The French Council of State examined this condition in respect of Article 135 of the EU VAT Directive. This lists the supplies which may not be exempted from VAT. Specifically in terms of this case:
(a) the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites
The Council of State concluded that “the combination of three of these four services does not appear to be systematically essential for such rentals to be able, depending on the context in which they are offered, to be regarded as being in competition with the hotel sector”. Instead, it suggests a new criterion for qualifying competition with the hotel sector “the minimum duration of stays” without setting a fixed duration. However, it does not make clear the duration.
The Conseil d’État is a governmental body that acts both as legal adviser to the executive branch and as the supreme court for administrative justice, which is one of the two branches of the French judiciary system.
Read more in our French VAT country guide.
