Reports from Germany during
the past week suggest the federal government is preparing to scrap the controversial
reduction in value-added tax on hotel rates it introduced only six months ago.
The cut from the standard
rate of 19 percent to 7 percent, made on Jan. 1, could be scrapped as part of
an investigation starting this September into all standard rate exemptions.
Last week, a senior politician from the Free Democratic Party, a junior partner
in Germany's ruling coalition, backed calls for removing the hotel VAT
reduction, labeling it as "a mistake."
The reduction has been contested by German travel management association VDR and other industry bodies
since it was first proposed last year. VDR argues that hotels have profiteered
by not lowering their room rates accordingly, leaving customers to pick up the
bill because they can now only reclaim 7 percent of their hotel bill instead of
19 percent.
The reduction also had the
unintended consequence of creating major administrative headaches for travel
managers since hotels continued to charge the standard VAT rate for such
additional items as meals. It led to the rewriting of negotiated agreements and
played havoc with complex German rules on per diem allowances for meals because
the two VAT rates meant hotels no longer charge a single price for bed and
breakfast.
Mark O'Riordan, chief
executive of VAT recovery specialist Meridian Global Services, endorsed calls
to end the reduction for hotels. "The fact that the German authorities
have realized that this initiative was 'a mistake' will be of little
consolation to the other parts of German society who are paying for this very
costly tax perk handed to hoteliers," he said. "It has not been good
for business travelers either. We would definitely welcome the ending of this
tax perk for the hotel industry."
However, some German
corporate travel professionals are less keen to move the goalposts again
because the federal government issued new bureaucratic procedures in March as a
workaround for the per diem problem. "We did so much work to adjust to the
rules that it is hard to understand the decision to move to 7 percent being
reversed so soon," a senior source said.
France and Sweden also
have reduced VAT rates for hotels. It has led to calls in the past month from
hoteliers in both the United Kingdom and Denmark for reductions in those
markets too.