How to correctly apply VAT on company cars

Circular n°807 bis - VAT on company cars

On 28 April 2023, the Luxembourg VAT authorities issued their circular n°807 bis providing details regarding the application of the CJEU’s decision (C-288/19) and completing circular 807 of 11 February 2021 on the VAT consequences of employers’ provision of cars to staff members. The new circular is also a useful reminder that Luxembourg employers must carefully consider the application of VAT in Luxembourg and other Member States when they provide company cars to their employees.

Background

Traditionally, the employer-provided car to an employee who uses it, at least partly, for private purposes was considered as “self-supply” subject to the VAT in the Member State of the employer, no matter the employee’s Member State of residence.

This interpretation has evolved since case C-288/19¹ where the European Court of Justice (CJEU) ruled that the provision of a car by an employer to a staff member should be considered as hiring a means of transport and made against remuneration when the following conditions are met:

a) The employee provides payment for the use of the car; or,

b) The employee gives up a part of their remuneration as consideration for the car; or,

c) The ability to use that vehicle is not contingent on the employee forgoing other benefits: and,

d) The employee has the right to use the car for private purposes and to exclude other persons from using the car, for an agreed period of more than 30 days² , and the car remains permanently at the employee’s disposal, including for private purposes.

Such a service is taxable in the Member State of establishement of the employer or in the Member State of residence of the employee when different. Therefore, a Luxembourg employer providing such a service to staff members residing in Belgium, France, Germany and Luxembourg must consider VAT payment in these four countries.

Should these conditions not be met, the employer-provided vehicle would, in principle, be considered as a self-supply subject to VAT in the Member State of the employer.

For more detailed comments regarding the CJEU decision and the circular 807 and their impacts, we refer to our previous newsletters: CJEU’s preliminary VAT ruling on the provision of vehicules by Luxembourg employers to staff members residing abroad– Advocate General’s opinion (C-288/19) (September 2020) and CJEU’s decision (C-288/19) and Circular (807) of the Luxembourg VAT authorities on the provision of vehicles by employers to staff members residing abroad (8 March 2021), our special webinar on 23 March 2021, our regular VAT updates and the article “Jurisprudence commentée TVA : Où et comment taxer l’utilisation privée d’un véhicule de société après l’Arrêt « QM » ?, Revue de droit fiscal (Legitech) in September 2021. 

Circular 807 and 807 bis of the Luxembourg VAT authorities

The Luxembourg VAT authorities issued their Circular 807 on 11 February 2021 which reiterated the content of the CJEU’s decision without adding further details or explanations, except that Luxembourg employers may have VAT obligations in countries where their employees reside. We higlighted in our above March 2021 newsletter that no date of entry in force was provided and that, due to its general wording, we understood that the VAT authorities consider that the decision also applies to cars provided to Luxembourg residents.

On 28 April 2023, the Luxembourg VAT authorities have issued a complementary circular, circular 807 bis with further information.

The circular states that the employer-provided car is considered to be made “against remuneration” (and thus in the scope of the CJEU’s decision) when, in their contractual relationship, the employer and the employee agree on a cash amount available to the employee for the provision of a company car or on criteria to determine this amount in cash. It would also be the case when they agree in the labour agreement (or an appendix to this agreement) that the employee is entitled to a “car budget.”

Circular 807 bis provides useful indication about the taxable basis subject to Luxembourg VAT when the employer-provided car is treated as suppliedservice and when the employee is a Luxembourg resident:

- In line with article 28, § 3,a) and 29 of the Luxembourg law, the taxable basis is the “normal value”, i.e. the price that would be paid between unrelated parties in normal market conditions and that could not be lower than the costs borne by the employer. This prevents undervaluation in order to reduce the amount of VAT to be paid to the Luxembourg tax authorities.

- If the employer leases the car, it is accepted that the “normal value” equals to, at least, the rent or leasing fees paid by the employer to the car leasing company and all other costs borne by the employer in connection with the car.

- When the employer is the owner of the car, the normal value consists of, at least, the depreciation value of the car calculated over a period of 5 years and all other costs borne by the employer in connection with the car.

- When the car is also used for professional purposes, it is accepted that the taxable basis could be reduced accordingly. The circular does not provide details on how determining this reduction, but we could think to a “log-book” method.

This indirectly confirms our understanding that, in circular 807, the Luxembourg VAT authorities considered that the CJEU decision also applies to cars provided to Luxembourg residents (see above),

Where in the past a Luxembourg employer has applied the traditional “self-supply” method and the employer-provided car is, now, considered a supplied service as a result of the QM case, he should adjust its Luxembourg VAT returns previously filed in the five-year limitation period. This could be seen as an indirect indication that the Luxembourg VAT authorities consider that the CJEU decision and its circulars are already applicable without a formal, precise date of entry into force.

Our comments

The circular is a useful reminder that Luxembourg employers should carefully consider how the CJEU’s decision impacts them and their employees both residing in Luxembourg and in other Member States and provide some useful information when the put-at-disposal cars for employees residing in Luxembourg fall in the scope of the decision.

Employers should consider their situation in Luxembourg and in other Member States where they may have to pay the local VAT.

The Deloitte Luxembourg indirect tax team remains at your disposal to discuss the potential impacts on your organization.

¹ C-288/19, QM v Finanzamt Saarbrücken, 20 January 2021.
² If the agreed period is of a less than 30 days and all other conditions of the decision be met, the rent would be subject to VAT in the Member State where the car is put at disposal of the employee. Such a case is most probably theoretical and certainly exceptional.