The Supreme Court has handed down a judgement in the four test procedures regarding the adjustment for the private use of a company car. In two of these cases, the decision was in favour of the business owner. These cases have been referred to the Court of Appeal in ‘s-Hertogenbosch for further examination.
VAT on private use of a car
All VAT incurred on the cost of a company car or van is deductible. Naturally, the business owner may only claim this deduction to the extent that the vehicle is used for VAT-taxable transactions.
In the final tax return period of each calendar year, an adjustment must be made for the private use of the car. Main rule Since 1 July 2011, this adjustment has involved correcting the VAT actually deducted on the basis of the ratio of private kilometres to total kilometres. In principle, commuting is treated for VAT purposes as private use of the car.
The exception In practice, however, this is applied much more frequently than the main rule. Where the business owner does not have the information required to determine the actual VAT attributable to the private use of the car, the private use of the car may be determined on a flat-rate basis. The adjustment for private use is then 2.7% (in some cases: 1.5%) of the car’s list price.
Supreme Court
The Supreme Court has now ruled that this flat-rate scheme is not permissible if it results in a higher VAT adjustment than would be the case if the actual expenditure on private use were taken as the basis.
The business owner must demonstrate this. To this end, evidence other than the (comprehensive) mileage records required by the Tax and Customs Administration may also be provided. This could include details regarding the nature of the business, the business purposes for which the car can be used, or the work carried out by the car’s user within the business. Statistical information may also be used to provide this evidence.
Objection
Judgments of the Supreme Court do not have retroactive effect. Only business owners who lodged an objection in good time against the VAT paid on a car used for private purposes may rely on the judgments now handed down. An objection is deemed to have been lodged in good time if the notice of objection was submitted within 6 weeks of the VAT being paid or within 6 weeks of the date of the decision granting a VAT refund.
In 2012, many advisers lodged a collective objection on behalf of their clients against the payment of VAT on the private use of cars for the year 2011. In subsequent years, the Tax and Customs Administration accepted that this collective objection did not need to be resubmitted. Business owners on whose behalf an objection was lodged under such a collective scheme may therefore rely on the judgments of the Supreme Court.
Proof
Although the Supreme Court ruled in favour of the business owner, the business owner still faces a problem. This is because the burden of proof rests with him as to the extent to which the (delivery) van was used for private purposes (including regular commuting). Only time will tell what supporting documents, apart from a (comprehensive) mileage log, will be deemed sufficient for this purpose.
The Tax and Customs Administration has indicated that it is examining the judgements. It is to be expected that the Tax and Customs Administration will impose a significant threshold on VAT refunds in the wake of the Supreme Court’s judgements. This is because, according to estimates, the issue involves half a billion euros for the Exchequer. This threshold will likely mean that stringent requirements will be imposed on the evidence to be provided by the business owner.