The German Business Travel Association, known as VDR, said a final decision by the German government Monday to cut the value-added tax applied to hotel room rates would increase travel costs for the country's companies by an estimated €400 million.
The Bundesrat, the upper parliamentary chamber representing Germany's federal states, rubber-stamped the rate cut as part of an economic stimulation package approved by the lower chamber, the Bundestag, three weeks ago.
The VAT rate will be reduced from 19 percent to 7 percent on Jan. 1. VDR said this will push up hotel costs for corporate clients because hoteliers are planning to pass on little or none of the reduction in the form of price cuts, yet businesses only will be able to recover 7 percent VAT on their room rate instead of 19 percent. "Only a few hoteliers will pass on the savings achieved through the decrease in value added tax to the customer," said VDR president Dirk Gerdom. "This has been demonstrated by various surveys carried out over the past few weeks."
The cut produces numerous other complications for buyers, including the need to account separately for other hotel charges, such as breakfast and meeting room hire, which will continue to attract 19 percent VAT. With many negotiated corporate rates including breakfast, these will have to be renegotiated because of the need to separate those elements which carry 19 percent VAT and those which carry 7 percent VAT.
The specification of a price for breakfast also will cause problems for business travelers because of Germany's notoriously strict personal tax allowances. Any claim for breakfast above €4.80 is treated as a taxable benefit in kind. "Such a deduction means an additional financial burden for employees and thus for the entire market economy," said Gerdom. "Rising costs will mean fewer overnight stays."
VDR estimated there were 40 million overnight domestic corporate stays in Germany in 2009. Based on an average room rate of €95, it therefore calculates the VAT cut will cost German companies €383 million in lower VAT recovery, assuming hotels do not lower their rates. Additional indirect costs will take the total bill well north of €400 million, VDR said.