Para-hotel regime: the Council of State partially censors administrative doctrine

The Syndicate of furnished rental professionals (SPLM) had lodged an appeal for abuse of power, requesting the annulment of several passages of the said comments. More specifically, the union contested:

• The “remarks” in paragraphs 80 and 90 of the comments, which provided that for a stay of less than one week, the condition of regular cleaning premises or regular renewal of household linen was satisfied if the service was provided “at least before the start of the stay” or “at least at the beginning of the stay”.
• An expression of paragraph 100, which, according to the SPLM, would suggest that the simple provision of a key box would suffice to constitute a service of “receiving customers, even if not personalized,”.

The Council of State ruled in part with the SPLM. He has Cancelled the passages in paragraphs 80 and 90 relating to stays of less than one week. The High Court ruled that these remarks “add to the law, as interpreted in accordance with the provisions of Council Directive 2006/112/EC of 28 November 2006 that it transposes”. In other words, by these clarifications, the tax authorities had created a condition of satisfaction of services not provided for by the law itself, which requires “regular” cleaning and renewal.

On the other hand, the Council of State has rejected the request for cancellation concerning paragraph 100. He considered that the administrative comments did not violate article 261 D of the General Tax Code. The Court clarified that the FTA' guidelines did not maintain that a simple key box would characterize the reception, but rather that an offer combining a physical reception with the delivery of the keys and a reception via an electronic communication device with the provision of the keys by a key box was consistent with the concept of “reception, even if not personalized”.

Analysis of the decision with regard to French tax authorities' guidelines

The decision is directly in line with the amendments made by article 84 of the Finance Law for 2024 (No. 2023-1322 of December 29, 2023) to article 261 D of the General Tax Code (CGI). This article, transposing European Directive 2006/112/EC, provides for a VAT exemption for furnished rentals for residential use, unless they are assimilated to accommodation services of a hotel or similar type (para-hotel).

Assimilation is characterized by the cumulative meeting of two conditions: a duration not exceeding thirty nights and the provision of furnished premises with at least three of the following four ancillary benefits :

• breakfast,
• regular cleaning of the premises,
• the supply of household linen,
• and the reception, even if not personalized, of customers.

The FTA' guidelines administrative comments of 7 August 2024 were intended to detail the application of these new rules. The stumbling block lay in interpreting the “regular” nature of cleaning and linen services for short-term stays. The Council of State emphasized that the cancelled “remarks” (paragraphs 80 and 90) introduced an exception to this regularity requirement for stays of less than one week, considering that a single service provided at the beginning of the stay was sufficient.

This interpretation was in contradiction with the purpose of article 261 D of the CGI, which is to exclude accommodation services similar to hotels from the VAT exemption. However, the requirement for “regular” services is precisely aimed at distinguishing a simple furnished rental (exempt) from a supply of hotel services (taxable).

Directive 2006/112/EC, as interpreted by the Court of Justice of the European Union (CJEU), requires a strict interpretation of the exemption of real estate rentals, in order to ensure the taxation of hotel-type activities.

By allowing a single service to satisfy the requirement of “regularity” for short stays, the tax administration moved away from this interpretation, thus risking to subject activities which, by the nature of the services offered, remained distinct from hotel activities.

The Council of State therefore considered that the administration had “added to the law”, thus exceeding its power of interpretation and creating a more favorable rule not provided for by the legislator.

The administration probably anticipated this point by changing the wording when the subsequent FTA' guideline was published, which indicates that “the accommodation provider is entitled to consider the condition satisfied”. The wording is therefore now written as a tolerance.

Concerning the customer reception (para. 100), the decision validates the administration's approach. Article 261 D CGI expressly mentions a “reception, even if not personalized”. The Council of State considered that the example of offering a choice between physical reception and an electronic system with a key box for handing over keys did not reduce the reception service to the simple provision of a box, but described a more comprehensive “reception” process adapted to new practices.

In reality, the FTA' guideline subsequent to the one attacked indicates “Note: Therefore, the mere provision of keys via a key box, without an alternative offered with a physical reception, cannot constitute an even non-personalized reception for customers.”

The position of the DGFiP had therefore come to put an end to the debate.

What to remember?

The Council of State is the natural judge of the excess of power of administrative acts, including fiscal instructions. It is common ground that an instruction cannot add to or contradict the law. Here, the addition of a modality for satisfying conditions for short stays, which relaxed the definition of “regular”, was a substantial modification not authorized by the legislative text.
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The Court of Justice of the European Union interprets VAT exemptions strictly and, by extension, broadly interprets exceptions to these exemptions (such as hotel services). The aim is to avoid distortions of competition between economic operators.

The term “regular” by nature implies repetition or frequency, not a single action, even if the length of stay is short. The administration could not empty this term of its substance for stays of less than one week without betraying the spirit of the law.

On the other hand, confirming the legality of the interpretation of “reception, even if not personalized” is also logical. Article 261 D CGI explicitly provides for the non-personalized nature, recognizing the modernization of reception methods.

What are the implications?

For taxpayers (furnished rental professionals):

• Increased uncertainty about short stays under French tax guidelines from August 2024 to March 2025: For owners renting for periods of less than one week, the simple service of cleaning and renewing the linen before the arrival of the customer no longer automatically guarantees that the conditions of “regular cleaning” and “supply of household linen” are met for VAT purposes.
  
  Operators will have to be more vigilant and, if their objective was to be subject to VAT (to recover VAT on their investments), they will have to ensure that their services are truly “regular” or that they include other services that make it possible to reach the threshold of the three services.

• End of an extensive reading by some brigades:
  At the same time, this will put an end to the position of certain verification brigades who saw BoFIP as a way to recognize the VAT liability of certain operators who in reality did not really offer an offer similar to a hotel for short stays.

• Loss of the opposability of French tax guidelines: At the same time, this will put an end to the position of certain verification brigades who saw the related guidelines as a way to recognize the VAT liability of certain operators who in reality did not really offer an offer similar to a hotel for short stays.
  
  As a reminder, a FTA' guidelines is in principle only enforceable by taxpayers and not by the administration. Indeed, this guideline will no longer be enforceable: taxpayers thus lose the opportunity to invoke this doctrine if necessary.
  
  In fact, it is a safe bet that the SPLM actually wanted to prevent this doctrine from being misused by the brigades, as we often see it, as an argument to justify a national recovery policy.

For the tax administration

• Finer interpretation: She will now have to assess the regularity of cleaning and the supply of linen on a case-by-case basis for short stays, without automatic presumption that a simple service before the start of the stay implies VAT liability.
  
  This implies a more nuanced and potentially more complex approach to checks.

• Reminder to order on the scope of the instructions: This decision is an important reminder of the limits of the normative power of the administration and of the need to scrupulously respect European law and directives in the development of administrative comments. Simplifications should not alter the meaning of the legal conditions: the guideline does not offer the administration the possibility of acting in a manner similar to the legislator.

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