Czech Republic: Accommodation service versus lease of real estate for VAT purposes, and abuse of rights concept

Accommodation service versus lease of real estate for VAT purposes, and abuse of rights concept

Municipal court decision

The Municipal Court in Prague held that the taxpayer’s arrangement did not constitute an accommodation service subject to value added tax (VAT), but instead was a VAT-exempt lease of real estate. The court further determined that the arrangement involved an abuse of rights.


A company purchased housing units for the purpose of leasing them to another company, which then subleased the units to a third company, which provided them to its employees for use. The sublessee classified the letting of the housing units to employees as an accommodation service and paid output VAT. All three companies then claimed the right to deduct VAT.

The municipal court determined that the letting of the housing units to employees was not a taxable accommodation service, but rather was a VAT-exempt lease of real estate, based on several factors.

  • The employees used the housing units for a long time (at least several months). Although the fee was agreed as per bed per day, the employees could use the entire housing unit, including accessories, and had their permanent residence at the address.
  • The employees were not provided with services typical of an accommodation service, such as cleaning or the provision of sanitary supplies, nor were they charged a local accommodation fee.
  • The entrance to the apartment building was equipped with bells for the individual housing units, also not typical for an accommodation service.
  • The real estate register listed the units as apartments.

The court then concluded that the entire chain of transactions had been artificially created to obtain a tax advantage, and that the conditions for abuse of rights as defined by the judgment of the European Court of Justice C-255/02 (Halifax) had been met. The court thus confirmed the tax administrator's decision to reject the right to deduct VAT. 

Read a September 2023 report prepared by the KPMG member firm in the Czech Republic



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