Interval drinks at the theatre: wine at 9% VAT

The Court of Appeal in 's-Hertogenbosch held that an alcoholic interval drink included in the ticket price is an ancillary supply following the rate of the performance. There are strings attached.

Introduction

Three theatres appealed because they disagreed with the tax authorities' view that they could not apply the reduced rate to alcoholic interval drinks. Sales of alcoholic drinks are normally taxed at 21%. The theatres argued that the reduced rate should apply, because the interval drink is ancillary to the performance.

The facts

The theatres sell tickets for performances and concerts. Besides admission, those tickets also entitle the holder to use of the staffed cloakroom and to an interval drink, and cover the booking fee.

The tax authorities took the view that 21% VAT is due on the alcoholic interval drinks: providing them is a separately identifiable supply, and the supply of alcoholic drinks is in any event expressly excluded from the reduced rate in the relevant heading of the Dutch VAT Act.

The theatres argued that the interval drink is not an end in itself but adds value and enjoyment to the principal supply, making it as attractive as possible. Splitting the theatre visit from the drink is, in their view, artificial. They charge a single admission price to make a visit more appealing, which underlines the ancillary function of the drink.

The court's ruling

The Court of Appeal held that from the perspective of the average visitor the interval drink has a significance of its own alongside the performance. Splitting them is not artificial, so objectively there cannot be a single indivisible supply.

The court did, however, treat the interval drink as an ancillary supply following the tax treatment of the principal supply. For the average consumer it is not an end in itself. There is a single supply made up of several elements, taxable at the rate applying to the main element.

The court held that the exclusion for alcoholic drinks does not apply, because it concerns hotels, cafés, restaurants, guesthouses and similar businesses, and not theatres, where the service element is barely present.

Conclusion

On the basis of this ruling, theatres can offer alcoholic interval drinks at the reduced rate. There are strings attached. Visitors must not be given a choice whether or not to take the drink, and the theatre must not be open to a wider public. That would create a café function, bringing the ordinary rules back into play.

Whether the tax authorities accept the ruling remains to be seen, as an appeal is still possible.