If you are interested in the internal workings of hotel loyalty programmes, you might find this VAT tribunal ruling of interest.
Recently published, it is the result of a (failed) appeal by Whitbread against the VAT treatment of Marriott Rewards redemption nights. Whitbread was a major operator of Marriott Hotels in the UK until it sold its interests a few years ago.
The case appears – because it is difficult to follow – to revolve around whether a redemption night incurs VAT. The room is paid for by Marriott Rewards, a US-based company and so not liable for VAT. The guest, of course, was in the UK at the time but the guest did not pay the bill.
Not only that but the guest does not even know in most cases that Marriott Rewards is paying the hotel – and certainly doesn’t know how much. Whitbread appears to claim that the Marriott Rewards payment was a marketing payment to them for providing a service to the guest and not a payment for accommodation itself. I think.
I won’t go into the details of the case as it gets very complex. Here is some interesting information from the ruling though about how the programme worked at the time:
….. the hotel was obliged to make a payment, typically between 2% and 4.5% of the “qualifying spend” (calculated in US Dollars) by the Member at that hotel. The precise percentage applied depended on the brand of hotel. The “qualifying spend” included the room rate together with amounts spent on extras such as restaurant and bar bills and an estimate of local taxes payable in respect of the stay.
In order to give hotels an incentive to sign new Members up to the Program a lower fixed rate percentage would be applied where a Member signed up to the Program at the time of the stay (referred to as an “enrolment stay”).
A special fixed charge of $6.50 per 1000 points applied where hotels agreed to make discretionary awards of points (for example as compensation or goodwill gestures).
…… the number of points that a Member would receive depended on a number of factors including whether the Member had “elite level” status. However, whatever the status of the Member, qualifying hotels acting as Sponsor made payments on the basis set out at (1) to (3) above. There was not necessarily any straightforward arithmetic link between the number of points that a Member received in respect of a particular stay and the amount of Sponsor payment that the hotel in question was obliged to make.
Lots, lots more on the inner workings of Marriott Rewards are in the ruling.
Thanks to Paul.