When an employer provides his employees with a company car used for private purposes, this constitutes a service subject to VAT. Traditionally, this VAT was payable in Luxembourg, regardless of the employee’s country of residence.

Following a new interpretation of the relevant legal provisions, VAT is now payable in Luxembourg or in the employee’s country of residence, depending on certain criteria.

Context

On 20 January 2021, the Court of Justice of the European Union (CJEU) handed down a judgment («the QM case») on a question of interpretation of the VAT Directive raised by a German administrative court concerning the provision of a company car by a Luxembourg employer to German frontier workers.

This judgement completely called into question the interpretation followed until then and raised many questions. The Court now requires a distinction to be made between the provision of a vehicle free of charge and the provision of a vehicle for consideration:

• In the case of provision free of charge, the supply continues to be regarded as a supply of services for which VAT remains payable in Luxembourg, regardless of the employee’s country of residence.
• In the case of provision for consideration, the service must now be considered as a long-term hire of a means of transport subject to VAT in the employee’s country of residence. A supply for consideration occurs in the following cases:
  • Payment of any kind made by the employee to the company;
  • The company retains part of the employee’s remuneration;
  • Possibility offered to the employee to opt for a company car, implying the renunciation of other benefits (cash or other);
  • Debit from the current account of the managing partner.

Position in different countries

Depending on the country in which VAT is due based on the criteria established by the CJEU, the methods of declaration and payment may vary (taxable amount, retroactivity, procedure, etc.):

• LUXEMBOURG : circulars n°807 of 11 February 2021 and n°807bis of 28 April 2023
• BELGIQUE : circular 2023/C/72 of 1 September 2023
• ALLEMAGNE : no circular yet
• FRANCE : no circular yet

Actions to be undertaken

• Assess the company car policy in order to determine where VAT is due (Luxembourg or employees’ country of residence);
• Undertake regularization procedures if VAT is due in the employees’ country of residence: rectifying VAT declarations in Luxembourg for the past and filing VAT declarations in the employees’ countries of residence – via local registration or via the One-Stop-Shop platform (OSS) if possible;
• Decide who will pay the VAT due on the provision of company cars to employees: the employees via a deduction from their net monthly salary or the company – with, if applicable, the calculation of a benefit in kind for the employees.

Our team is available to advise and assist you.

For further information, please do not hesitate to contact us.

¹ QM Case (C-288 / 19) of 20.01.2021