The CJEU assessed the facts of a case involving an employee whose employer provided him with a company car for both professional and private use free of charge, i.e. without any remuneration having been agreed for this provision. In particular,
- the employee rendered no payment for the vehicle made available to him,
- he gave up no part of his remuneration as consideration for it, and
- his entitlement to use the vehicle was not contingent on his forgoing other benefits.
The CJEU ruled that under such circumstances, the act of making a vehicle available to an employee did not constitute a supply of services “for consideration”, and that Article 56(2) of the EU VAT Directive (under which the long-term hiring of a means of transport to a private customer shall be subject to VAT in the customer’s country of residence) did not apply. Instead, the particular rules for the private use of company assets were to be observed (i.e. Article 26(1) of the EU VAT Directive).
By contrast, the CJEU clarified that the provision of a company car to an employee for consideration will be subject to VAT, as a long-term hiring of a means of transport, where all of the following conditions are met:
- the employee has an uninterrupted right to use the company car for private purposes and to exclude other persons from using it
- in exchange for rent
- for an agreed period of more than 30 days.
Under these circumstances, the provision of the company car to the employee does constitute a supply of services “for consideration”, and the agreed rent (which may be paid directly, in the form of a partial salary waiver, or otherwise) is subject to VAT in the employee’s country of residence.
Thus, in a cross-border scenario (i.e. in the case of an employer whose employee resides in another EU Member State), the employer is obligated to properly assess, declare and pay this VAT in the employee’s country of residence.
It should be noted that this reasoning by the CJEU applies irrespective of whether the employer is the legal owner of the vehicle, or has a different right of disposal over it (e.g. under a lease).
If your company provides company cars to employees, it will be important to closely monitor the response of the Luxembourg VAT authorities and the tax authorities of our neighbouring countries to this CJEU case-law.
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The VAT team remains at your disposal should you require any further information in this respect.