Visitor tax may or may not be subject to VAT: BFH rulings from 06 December 2023, XI R 21/23 and XI R 33/21

In the "Gemeinde A" case, the ECJ ruled on 13 July 2023, following a referral from the BFH (German Federal Fiscal Court), that the municipality’s visitor tax is not subject to VAT if the visitor tax is linked to the stay in the municipality but not to the actual use of the spa facilities, and these facilities are freely accessible to everyone free of charge. The BFH has now ruled on the case referred to the ECJ and distinguished it from another case in which it deemed the visitor tax to be subject to VAT. Here, we provide a brief (not exhaustive) summary of the key statements of the two rulings.

“Gemeinde A" case (XI R 21/23, formerly XI R 30/19)

1.      Facts of the case

As a spa town renowned for its health-beneficial climate, municipality A levies a visitor tax on certain non-residents and on certain residents subject to the visitor tax but not on day visitors, non-residents or residents who work or are receiving training in the municipality. The spa facilities are freely accessible to everyone, and a visitor’s pass is not required for access. In its VAT returns, the plaintiff regarded the visitor tax as remuneration for an activity subject to VAT, namely the spa, and claimed a deduction of the VAT paid for all input supplies related to tourism.

2.      Decision

In this case, the BFH followed the ECJ's guidelines and ruled that the visitor tax was not VAT taxable, as there was no legal relationship (in which mutual supplies are exchanged) between the municipality and the visitors, who are permitted to use the spa facilities. Accordingly, the municipality does not provide an economic activity for which the visitor tax is to be regarded as remuneration. This means that the municipality is not entitled to deduct input VAT in this respect.

Case XI R 33/21

1.      Facts of the case

This case concerns a municipality located on an island that levies a visitor tax and a tourism tax.

The visitor tax must be paid by all non-residents who are staying in the tax collection area without having their usual place of residence there and who have the opportunity to use the spa and recreational facilities. The visitor tax must be paid regardless of whether, and to what extent, the spa facilities are actually used. Persons required to pay the visitor tax receive a visitor’s pass, which must be presented upon request. Anyone unable to produce a visitor’s pass at an inspection is charged a higher daily visitor tax.

The tourism tax must be paid by natural and legal persons who directly or indirectly derive economic benefits from tourism. This applies to those who provide paid supplies directly or indirectly to tourists in the municipality.

The municipality assumed that it was carrying out an economic activity with its spa and claimed input VAT deduction from input supplies for tourism marketing.

2.      Decision

The tax office had argued that in the present case, just as in the case of "Gemeinde A", the visitor tax was levied per day of stay and was not linked to the actual use of the spa facilities. According to the BFH, however, this was not the case - neither in the case of "Gemeinde A" nor in the case of the island municipality.  The levying of a visitor tax is only permitted under German law if there are also special spa facilities that can be used. The ECJ could not have known this.  The Senate expressly stated that the national courts are responsible for interpreting national law in accordance with the division of competencies.

For the BFH, the decisive difference to the "Gemeinde A" case is that the spa facilities were not freely accessible to everyone free of charge. This means that those subject to the visitor tax have an advantage that goes beyond that of the general public.  Therefore, the visitor tax here is remuneration for an economic activity of the municipality.

The fact that treating the municipality as a non-taxable person within the meaning of the second subparagraph of Article 13 (1) of the VAT Directive would lead to greater distortions of competition had been established by the tax court in an unobjectionable manner.

However, the tax court did not take into account that making the spa facilities available without charge to residents of the municipality is a non-economic activity. Furthermore, it is conceivable that the municipality also uses the spa facilities itself. The municipality is  in this respect not entitled to deduct input VAT and an apportionment must be made.

It is also unclear whether the tax office wanted to tax, and did tax, the municipality’s entire enterprise, as the decision was incorrectly issued only to the spa.

The BGH (German Federal Fiscal Court) therefore referred the case back to the tax court.


Nadia Schulte
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