Supreme Court delivers final ruling in company car case


Supreme Court delivers final ruling in company car case

On April 21, 2017, the Netherlands Supreme Court ruled on four cases regarding VAT for private use of company cars. The cases show that the Dutch rules can be maintained and that pending objections will probably be rejected. However, if taxable persons do not have kilometer records, the cases provide opportunities for establishing the private use in other ways. This may be more beneficial to you than application of the flat rate proposed by the State Secretary.

25 April 2017

Rules for private use of company cars

During the financial year, entrepreneurs can deduct all VAT on costs relating to company cars, provided the cars are used for activities that permit deduction of input VAT. At the end of the financial year, they declare VAT relating to the private use of such cars. Up to July 1, 2011 the levy of VAT on the private use was based on the notional addition for income tax, involving an adjustment of the deduction. Since July 1, 2011, VAT is levied based on the system of deemed supplies. Entrepreneurs who do not have kilometer records must report VAT in the amount of 2.7% of the car’s list value (including VAT and private motor vehicle and motorcycle tax) or 1.5% (if no VAT was deducted upon purchase of the car or if the car is already being used for more than five years).

If employees have to pay their own contribution for the private use of a company car, the employer should pay VAT on this contribution received during the year. This is different if the own contribution paid is lower than the open market value: entrepreneurs will then have to pay VAT on the open market value. The open market value matches with what entrepreneurs would have to pay in the market to make the car available for private use by employees.

In this case, employers may opt not to pay any VAT on the own contribution during the year, to deduct the VAT on costs incurred and to apply the above-mentioned flat rate at the end of the year.

Test cases

Application of the new rules for private use of company cars as from July 1, 2011 has prompted many entrepreneurs to file an objection to their own VAT return, which crystallized into four court cases. On April 21, 2017 the Netherlands Supreme Court ruled in these four test cases.

Sustainability of the new rules

The four cases particularly focused on the sustainability of the new rules. The Supreme Court ruled on all fronts that the rules can be maintained. Especially the Supreme Court’s considerations on the application of the open market value are interesting. After all, the VAT Directive provides that the rules can only be applied in cases of tax fraud and tax avoidance. This will not be the case for many entrepreneurs, who do not expressly calculate their own contributions with the objective to pay less VAT. However, the Supreme Court ruled that the rules can be applied in all cases in which less VAT is payable on the own contribution for use of the goods than would normally be paid for similar services to an independent (unaffiliated) entrepreneur.

Use of statistic data

In accordance with its previous ruling in the Van Laarhoven case, the Supreme Court also decided that the Netherlands may use a flat-rate scheme. The fact that this may in certain cases lead to more VAT payable than for the effective private use, does not mean that in those cases no VAT is to be levied at all on the private use. The VAT payable in such cases only needs to be reduced to an amount that corresponds with the effective private use.

If taxable persons do not have kilometer records, the Supreme Court argues that the extent of the private use can be determined based on a reasonable estimate. Statistic data can be used as a guideline, but use of such data is neither necessary nor decisive. The circumstances to be taken in to account for determining whether the private use has reasonably been determined are: the nature of the company, the business purposes for which the car can be used within the company, the position and the activities within the company of the person who uses the car, and what is known about the way in which the car can or has been used for private purposes, such as for commuting traffic. When use is made of statistic data, it should be demonstrated based on these circumstances that those statistic data can be used in the case at hand.

Adjustment of deduction for the first six months of 2011

As described above, the former adjustment of the deduction was replaced by the concept of ‘deemed supply’ in 2011. The court cases deal with the question whether the deduction is to be adjusted at year-end 2011, since the rules that required such deduction adjustment no longer applied at that moment.

The Netherlands Supreme Court argued that the deduction can be adjusted since it is based on non-statutory rules. Adjustment of the deduction is part and parcel of the deduction made earlier under the very same non-statutory rules. After all, the law provides that taxable persons would immediately have been faced with a limitation of deduction in the period in which they incur the costs relating to their company cars.


Many taxable persons have filed objections against their own VAT returns for the years 2011 up to and including 2016 with a view to these court cases. The State Secretary recently designated these objections as a class action objection, thus enabling the Tax Inspector to deal with the totality of these objections in a single decision. All these objections will probably be rejected soon.

Given the possibility referred to by the Supreme Court to determine the private use based on a reasonable estimate, it may be relevant for you to examine whether you qualify for a lower VAT on private use. Please note that commuting traffic qualifies as private use for VAT purposes.

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