OUR INSIGHTS AT A GLANCE
- In the QM v. Finanzamt Saarbrücken case (C-288/19), the Court of Justice of the European Union ("CJEU") examined whether the provision of a company car to a non-resident employee used for both business and private purposes constitutes a long-term hiring of a means of transport subject to VAT in the employee's country of residence.
- The decision of the CJEU is of particular relevance for Luxembourg employers providing company cars to Luxembourg and/or non-Luxembourg resident employees. This CJEU case may lead to an increase in the VAT costs of leasing transactions, as well as to additional VAT compliance obligations for Luxembourg employers in the country of residence of their employees.
- In the QM v. Finanzamt Saarbrücken1 case (C-288/19), the Court of Justice of the European Union ("CJEU") examined whether the provision of a company car to a non-resident employee used for both business and private purposes constitutes a long-term hiring of a means of transport subject to VAT in the employee's country of residence.
Background and question referred to the CJEU
QM is a Luxembourg investment fund management company. In 2013 and 2014, QM made two company cars available to two employees, who operated in Luxembourg and were residents in Germany. Those cars were used for professional and private purposes. In one case, the car was provided free of charge, while in the second case, the employee bore a certain cost each year, which was deducted from his remuneration.
QM was registered for VAT purposes in Luxembourg under the "simplified tax regime" and therefore could not deduct input VAT on its costs (notably the VAT incurred on leasing costs). Following the publication in 2014 of a circular from the German VAT authorities, QM registered for German VAT purposes and considered the provision of the cars as being subject to German VAT for the years 2013 and 2014.
Although its German VAT returns were accepted, QM decided to challenge this position and to bring an action before the German courts on the ground of a double VAT taxation (input VAT was not deductible in Luxembourg and the leasing was VAT taxable in Germany).
Judgement of the CJEU
According to the CJEU, a distinction should be made between company cars provided to employees (1) free of charge and (2) for consideration.
Company car provided "free of charge"
The CJEU ruled that the provision of a company car to an employee free of charge is not subject to VAT as a long-term hiring of a means of transport. There is indeed no VAT transaction between the employer and the employee since there is no remuneration received directly or indirectly by the employer.
The provision of a company car is considered as free of charge where (i) the employee does not provide payment for the car being made available to him, (ii) he does not give up a part of his remuneration as consideration for it and (iii) his entitlement to use the car is not contingent on the forgoing of other benefits.
The rules applicable to the private use of company assets should be observed, i.e., if input VAT on the acquisition of the cars has been deducted, this input VAT should not be fully recoverable considering the private use of the car.
Company car provided "for consideration"
On the contrary, the CJEU stated that the provision of a company car to an employee for consideration (i.e., not free of charge) is subject to VAT, as a long-term hiring of a means of transport, where all 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; and
- for an agreed period of more than 30 days.
Guidelines issued by the Luxembourg VAT authorities
The Luxembourg VAT authorities, with their circular n° 807 issued on 11 February 2021, shed more light on the practical consequences of this CJEU case for Luxembourg companies.
In line with the reasoning of the CJEU, the Luxembourg VAT authorities identify three different scenarios which might occur in relation to the provision of a company car to an employee and analyse the VAT treatment applicable from a Luxembourg VAT standpoint:
- If the employer provides the company car in return for consideration (as defined by the CJEU), for an agreed period of more than 30 days and the employee obtains the right to use it and to exclude other persons from using it, this supply shall qualify as a long-term hiring of a means of transport and will be subject to VAT in the employee's country of residence. Therefore, if the employee is resident in another Member State, the employer should register for VAT in the other Member State in order to declare and pay the VAT due. The agreed rent constitutes the VAT taxable basis.
- If the employer provides the company car without any consideration (as defined by the CJEU) but the employer has (fully or partially) deducted the input tax in Luxembourg on costs relating to the acquisition or leasing of such a car, the rules for the private use of company assets shall apply. Subsequently, the employer should declare the use of the company car made for purposes other than those of his business (i.e., private use) in its Luxembourg VAT returns.
- If the employer provides the company car free of charge and has not deducted the input tax in Luxembourg relating to the acquisition or leasing of such a car, this supply falls outside the VAT scope.
This CJEU case will have negative impacts as it will lead to:
- an increase in the leasing costs for Luxembourg and non-Luxembourg resident employees having a company car "for consideration";
- new VAT burdens on employers, given that the provision of a company car to employees shall be subject to VAT in the employee's country of residence in some circumstances. This may trigger VAT compliance obligations for employers in foreign countries (although some relief could be provided upon the implementation of the new One Stop Shop scheme that should enter into force as from 1 July 2021).
Actions to be taken
We strongly recommend that Luxembourg companies which provide company cars to Luxembourg and non- Luxembourg resident employees carefully review their current internal leasing policy and assess the potential VAT impacts of this CJEU case and the related Luxembourg circular.
1. CJEU, 20 January 2021, C-288/19, QM v. Finanzamt Saarbrücken.
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