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VAT free charge
An hotelier in France took deposits from guests who booked rooms in advance. A dispute over the VAT due on these deposits arose where such sums were retained by the hotelier because of the guest cancelling the booking: were they remuneration for the reservation service and subject to VAT, or were they cancellation payments to compensate for the loss of a guest's customs and therefore not subject to VAT?
The European Court of Justice said that Articles 2(1) and 6(1) of the Sixth Directive meant that a sum paid as a deposit, in relation to the supply of hotel services, was to be regarded, where the hotelier retained the amount as a result of the guest cancelling, as compensation for the loss suffered as a result of the cancellation. It had no direct connection with the supply of any service for consideration. Therefore it was not subject to VAT.
Société thermale d'Eugénie-les-Bains v Ministère de l'économie, des Finances et de l'Industrie (Case C-277/05), European Court of Justice, 18 July 2007
