What are the VAT implications of providing a company car to an employee who lives in Germany?
Dutch regulations
This usually involves a car with a Dutch registration number. Most business owners will apply the Dutch VAT rules. This means that the VAT charged on the car and its running costs is deducted (provided the car is used for VAT-taxable supplies). At the end of each year, a VAT adjustment is made, where necessary, for the private use of the car (often applying the approved rates of 2.7% or 1.5% of the car’s catalogue value).
German tax authorities
The German tax authorities disagree. They take the view that the Dutch employer must pay VAT on the private use of the car in Germany.
Advocate General
The matter has been raised with the Court of Justice (ECJ). The case concerns a Luxembourg-based company which provides cars to two employees. The employees live in Germany and use the cars for both business and private purposes.
One employee does not pay for the use of the car. The other employee pays the employer a contribution towards the costs.
With regard to the car, for which the employer receives an allowance, the Advocate General (AG) at the Court of Justice of the European Union (CJEU) is of the opinion that this constitutes a long-term hire. For VAT purposes, the place of supply is where the customer, the employee, resides. Consequently, this is in Germany. This means that Germany is entitled to levy VAT on the private use of the car.
The car, which is used by the employee free of charge, is not hired out. In Germany, VAT is not levied on the private use of this car.
Court of Justice
The Advocate General advises the Court of Justice. We must therefore wait and see whether the Court follows this advice. If it does, this could result in double VAT liability. Dutch employers would then have to pay VAT on private use in both the Netherlands and Germany. In the reverse situation, no VAT would likely be payable on private use.