Clarification of VAT Treatment for Company Vehicles Provided to Non-Luxembourg Resident Employees.

Clarification of VAT Treatment for Company Vehicles Provided to Non-Luxembourg Resident Employees.

On September 1st, 2023, the Belgian tax authorities released the circular 2023/C/72 to clarify the VAT treatment on company’ cars used by employees resident in Belgium.

Background :

In January 2021, the Court of Justice of the European Union (“CJEU”) released a decision regarding the VAT application on company cars put by employers at the disposal of their employees (QM case against Finanzamt Saarbrücken). The Court ruling clarified the conditions to qualify such supply and its qualification into taxable supply of services being specifically as ‘supply of long-term hiring of means of transport’ subject to VAT in particular when the employer and the employee are not resident in the same member state.

On 28 April 2023, the Luxembourg tax authorities released the circular 807bis to clarify further its initial circular 807 released on February 11, 2021 following CJEU ruling C-288/19. In nutshell, the company cars put by employer at the disposal of their employees is considered as taxable supply of services subject to VAT in the country of residence of the employee if the following three conditions are met cumulatively :

• the employee has the right to use the car for private purposes for an agreed period exceeding 30 days ;
• the car is permanently and exclusively at the disposal of the employee for his / her private use ;
• the employee has the right to use the car against :
  • Rent payment
  • Concede part of his / her cash remuneration
  • Choose between different benefits offed by the employer.

When the three conditions listed above are met, the service is deemed as supply of service for consideration and is subject to VAT to be collected by the employer and settled in the country of residence of the recipient (I,e employee),

If not, the supply of service cannot be considered for consideration

Some questions remain unanswered, as at today Luxembourg, Belgium and Germany clarified their positions to some extent. In contrast, French tax authorities position still lack clarity.

Should you have any query on the above, our team remains at your entire disposal to assist in the analysis of impact that  such change might have on your business and share with you the outcome.