On 17 September 2020, Advocate General Szpunar published his opinion in the case C-288/19 of the European Court of Justice ("ECJ") regarding the VAT regime applicable to the private use, by employees, of company cars.
In the case at hand, a company established in the Grand Duchy of Luxembourg had made company cars available to two employees residing in Germany for private and professional purposes. The company was subject to the simplified VAT regime, which did not allow it to deduct input VAT. The first employee was not paying any consideration for the private use of the company car, which was treated as a benefit in kind. The second employee had to contribute to the leasing costs, a portion of which were deducted from the employee’s salary.
The question referred by a German court to the CJEU for a preliminary ruling was to determine whether the concept of "hire of a means of transport to a non-taxable person", referred to in Article 56 of Directive 2006/112, includes the provision of a vehicle free of charge by a taxable person to his employee for both business and private purposes. The reasoning of the Advocate General recalls that VAT applies only to transactions performed for a consideration. He concludes that the mere provision of a company car, which has not given rise to a payment or a reduction in remuneration, does not make it possible to confirm that it is for consideration and therefore is not subject to VAT.
For completeness, and although not explicitly covered by the question referred to by the German court, the Advocate General also analysed the situation of the second employee. He concluded, first of all, that the transaction may, subject to the referring court’s factual assessment whether the employee’s payment actually reflected the value of the service received, be qualified as carried out for consideration and thus as falling within the scope of VAT. The taxable basis would, in the Advocate General’s view, be in principle the amount of the employee’s contribution to the leasing costs incurred by the company. Regarding the nature of the service, the Advocate General proposed to consider that if a vehicle belonging to its business is provided by a taxable person for the private use of one of his employees for a period of more than 30 days for consideration, the transaction should be qualified as “other than short-term hiring of a means of transport”. As a result, the place of supply would be the Member State of permanent residence of the employee, potentially triggering therefore, registration and VAT collection obligations abroad for the employer in a cross-border situation.
While the Advocate General opinion is not binding for the CJEU, the CJEU tends to follow his opinions. In such case, this decision might affect the way remuneration packages offered by companies to employees, and especially to cross-border commuters, will be structured going forward.