German travel management association VDR by March 19 expects to hear whether the country's ministry of finance will approve a series of suggested workarounds to unintended problems caused by a recent cut in the value-added tax rate for hotels.
VDR submitted the proposals in late January in a combined lobbying effort with eight other trade federations, including the Federation of German Industries and the Federal Association of German Employers. It now has been told the ministry will issue its formal advice later this month. "By all accounts, the requests of the trade federations will be implemented in the practical advice," a VDR source told
EuroBTN this week.
On Jan. 1, the VAT rate for hotels was reduced from the standard 19 percent to 7 percent. However, this has caused numerous problems for buyers, mainly because the reduction applies only to the accommodation element of a hotel bill. Other items, such as breakfast and Internet access, remain taxable at the full 19 percent.
This causes difficulties for business travelers because Germany has strict allowances on how much employers are allowed to compensate employees for subsistence. A traveler who is away for eight to 14 hours, for example, is entitled to only €6 of non-taxable compensation for food and drink. Until the Jan. 1 VAT change, breakfast in a hotel was considered part of the hotel rate and was not included in the per diem allowances. Now it is.
"Now that hotels are breaking out breakfast from the main hotel charge, travelers are getting back as little as €6 of what they paid for the breakfast tax-free," said Jenny Nittmann, senior manager for international VAT consulting with Meridian Global Services.
VDR has proposed several solutions to avoid these unintended consequences. The first is retention of a "simplification rule," which would make possible a simplified deduction of the standard VAT rate for breakfast. Another is to remove onerous accounting requirements concerning booking. At present, a service is only considered to have been originated by the employer if the corporate client orders the service in writing by fax or on a printed-out e-mail. The hotel cannot simply confirm the booking in writing. "This procedure is impractical and involves additional costs for the company," said VDR president Dirk Gerdom.
On the simplification rule, Gerdom said: "If the Federal Ministry of Finance allows [it] to remain in force, that would really simplify internal accounting procedures. When settling travel expenses, it would then be possible for companies to refund breakfast costs to the business traveler by deducting the standard flat rate."
VDR also objected to the VAT rate reduction in principle, because many hotels have decided not to lower their prices. Paradoxically, this has pushed up hotel costs for corporate clients because they can now only claim back 7 percent of the hotel bill in VAT as opposed to 19 percent
(EuroBTN, Dec. 22, 2009).