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Taxes

Brothel not allowed to enjoy reduced VAT for German hotels

A federal German court has ruled that owners of brothels should not profit from a reduced VAT rate for the hotel sector that was introduced in 2010. The judges said such places were not established to foster tourism.

Renting out rooms to prostitutes for them to pursue the oldest profession in the world does not exempt owners from paying the standard VAT rate, Germany's Federal Fiscal Court said in a ruling published on Wednesday. The court is the last resort within the German jurisdiction on tax and customs matters.

The court was ruling in a case where the owner of a brothel had rented out rooms for up to 170 euros ($234) per day and declared the takings as eligible for the reduced VAT applicable to German hotel businesses.

The reduced tax of 7 percent instead of the usual 19 percent was introduced in 2010 in the wake of a law promoted mainly by the business-friendly Free Democrats, the Christian Democrats' former and now outgoing junior coalition partners.

Two different things

FDP leaders argued back then that the move would improve the competitiveness of the domestic hotel industry and boost tourism, with policy makers seeing it as an integral part of the nation's growth acceleration program.

But the Munich-based court found brothel owners were not entitled to such tax breaks, arguing mainly that the reduced rate was meant to crank up the lodging and accommodation business.

The court said that renting out rooms for prostitution had little to do with traditional, tourism-related accommodation services, as the rooms in question were used for "professional purposes."