Due to the lack of clarity surrounding certain points and the fact that the Circular was no longer in line with the evolutions regarding the distinction between the supply of goods and the provision of services, a new explanatory note was published on 4 April (Circular 2019/C/26), which replaces the 2009 decision.
If an overall price is charged for a restaurant or catering service that includes both the food and the drink, this price needs to be split in order to apply the correct VAT rate: 21% for the drinks and 12% for the food. If the restaurant operator or caterer does not make this split, the full price must be subject to the highest VAT rate, i.e. 21% in this case.
The 2009 decision provided for a (too) strict rule
The part of the overall price to be attributed to the share of the drinks must in principle correspond to the 'normal value' of the drinks, which the Administration defined as (translation) "the price that the customer would normally have to pay if the drinks were purchased separately".
This strict interpretation overlooked the fact that a fixed menu price is usually lower than the sum of the items when they are purchased separately. By requiring that the drinks be based on the menu price, this reduction is charged exclusively in the food (subject to a lower VAT rate). In practice, this led to disagreements during inspections. However, in the 2009 circular, the VAT administration accepted a fixed rate of 35% for standard "all-in" menu types with three or more courses (i.e. menus containing an aperitif, accompanying wines, mineral water and coffee or tea). As long as it was substantiated and the VAT administration agreed, a different coefficient could be applied.
The new circular is less strict
The new circular provides for the possibility to split the single price in another way than on the basis of the 'normal value' of the drinks, by allowing for a split based on a 'rule of three'. This method is referred to as the "split according to the percentage share".
The split can now also be done on the basis of the percentage share of drinks in the overall price. As such, when determining the menu price, the reduction is split proportionately between drinks and food.
The VAT administration provides the following example in its circular to illustrate this:
In a fast food restaurant, a menu consisting of hamburger, chips and a drink is offered at an overall menu price of €6.74, including VAT. The components are also offered separately ('à la carte') each at a separate price, including VAT:
- The 'à la carte' price of a drink is €2.05.
- The total of the 'à la carte' price of a hamburger and the 'à la carte' price of chips is €6.24.
The overall menu price is therefore €1.55 cheaper for the customer than if they were to order the components separately at the 'à la carte' price.
The splitting of the 'overall menu price' in accordance with the above-mentioned principle, whereby the share allocated to the drink (including VAT) therefore amounts to €2.05 (= the 'à la carte' price of the drink), results in the drink being overvalued with respect to the food, since the discount also partly relates to the drink.
In this situation, the administration therefore considers the percentage share:
- Of the 'à la carte' price of the drink in the total 'à la carte' price as a correct and objective key to ascertaining the value of the share (including VAT) of the drink in the overall menu price.
The percentage share of the 'à la carte' price of the drink (€2.05) in the total 'à la carte' price (€8.29) is 24.73% in the above-mentioned example. According to this key, the share (including VAT) to be allocated to the drink in the 'overall menu price' is therefore €1.67 (i.e. 24.73% of €6.74).
- Of the 'à la carte' price of the food in the total 'à la carte' price as a correct and objective key to ascertaining the value of the share (including VAT) of the food in the overall menu price.
The percentage share of the 'à la carte' price (the 'à la carte' price of a hamburger and chips being €6.24) in the total 'à la carte' price (€8.29) is 75.27% in the above-mentioned example. According to the key, the share (including VAT) to be allocated to the food in the overall menu price is therefore €5.07 (i.e. 75.27% of €6.74).
In the new Circular, the administration confirms the possibility of using a fixed coefficient of 35% to determine the share of drinks for standard 'all-in' menu types with three or more courses (i.e. menus with an aperitif, accompanying wines, mineral water and coffee or tea) for the future as well.
This coefficient therefore still only applies in the future for this situation (all-in menus with 3 or more courses) and not to other all-in formulas where, for example, spirits and champagne or all drinks after midnight are included.
Moreover, this coefficient is still not mandatory, which means that restaurant operators or caterers can deviate from it, under the control of the administration, if a different price policy is applied. The administration can also contest the 35% rate if it deviates from reality in specific cases.
Menu price with an (optional) additional price for drinks
The administration now also makes a judgement on the situation when a separate price (including VAT) is indicated on the menu for drinks (e.g. accompanying wines which are optional for a given menu). In that case, the VAT is included in the additional price, subject to the 21% rate.
The price of the menu without the optional drinks also needs to be split further if that menu includes other drinks as standard (e.g. aperitif or coffee). This is in fact merely a confirmation of the rules that were already applied in practice.
The new updated Circular confirms the already existing coefficient of 35%, but offers an additional alternative with the percentage share method. For all-in menus where the percentage share of drinks is less than 35%, this offers the simple possibility to limit the drink component (21%) of the overall price.