Tax verdict

Risk of a tour operator exodus

Klaus Hildebrandt
fvw
Klaus Hildebrandt

The recent court verdict on taxation of hotel room capacity could result in tour operators ‘offshoring’ procurement activities, writes fvw’s Klaus Hildebrandt.

The decision of the Münster financial court is a hard blow for tour operators. Legally this is only a provisional verdict because it fundamentally decided how hotel rooms used by tour operators should be taxed but left open the question of the actual amount. The case will probably go on appeal to the federal financial administration court.

Of course, procurement of hotel rooms is something different than renting offices or factories, which the law was actually made for. A tour operator doesn’t produce package holidays in a hotel room but with hotel rooms.

It is only a minor relief that the judges excluded operating costs such as electricity, water and heating in addition to accompanying costs such as catering which were already excluded by financial authorities three years ago. But this doesn’t change the core issue and it could take years before the federal court makes a ruling. The question is what happens until then.

The travel industry has two options. It can hope for more legal cases against the tax authorities where there might be a different decision. Alternatively it could seek a political solution but that will be difficult as nobody wants to make an exception for just one sector and corporate tax is an important source for revenues for local authorities.

Tour operators are in a tight spot. Payments back-dated to 2008 would hit even prosperous companies hard, and the sum could reach up to €100 million for major groups.

Smaller tour operators have already relocated their hotel contracting and travel production to Switzerland, where they can also save on VAT payments. Larger companies are still waiting, even though they have foreign branches. This isn’t an easy decision with regard to staff.

But if no sign of success comes soon after the defeat in Münster, either through a different verdict or a political signal, then the ‘exodus idea’ will grow among many tour operators. And then there would be loud protests by local politicians.

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