A recent court case in France has thrown an interesting light on the eligibility of landlords of furnished lettings to VAT registration.

Under European law, furnished lettings are ordinarily not subject to VAT.

In order to give effect to this regulation, French law states that the exemption from VAT does not apply where the landlord provides at least three of four specified services on a regular basis, such as might occur in a hotel.

• Cleaning of the room(s);
• Provision of breakfast;
• Provision of linen;
• Reception of guests.

The regulations state that cleaning of the room need not take place on a daily basis, provided it was 'regular', but that 'regular' did not mean merely at the beginning and the end of the letting.

However, the condition could be fulfilled where the landlord had the 'means' to propose such cleaning service to clients, notwithstanding the fact that this might not occur.

Thus, the regulation states: "Cette condition sera considérée comme établie lorsque, bien que ne fournissant pas effectivement un service régulier de nettoyage, l'exploitant dispose des moyens lui permettant de proposer un tel service au client durant son séjour, selon une périodicité régulière."

In a case recently heard by the French Appeal Court sitting in Marseille, a landlord of three apartments had registered for VAT, as part of which she had obtained several refunds of VAT she had paid on goods and services purchased for her business.

As part of a tax investigation of the business local tax officials decided she did not fulfil the conditions necessary for VAT registration and demanded a return of the VAT refunds.

The landlord challenged this decision, arguing that she offered a cleaning service to her guests, albeit that such a service was only provided on three occasions in two years.

The court considered that the quality and price of the services provided were in line and in competition with similar services provided by hotels.

That being the case the court ruled that it was appropriate for her to be registered for VAT.