Global Indirect Tax Community

Share knowledge, ask questions,
find answers and explore popular topics.

Activity Feed Forums EU Member States Luxembourg Luxembourg VAT On Company Cars (Circular N° 807 – Unofficial English Translation)

  • Luxembourg VAT On Company Cars (Circular N° 807 – Unofficial English Translation)

    Posted by Audrey on 16 February 2021 at 3:04 pm

    Luxembourg VAT Authority Circular (N° 807) regarding the “provision of cars to employees” further to the CJEU’s recent judgement in case C-288/19 (QM v. Finanzamt Saarbrücken).

    Circular N ° 807

    Date: 11 February 2021

    Subject: Luxembourg VAT Law (Articles 2, 16 and 17) – the provision of cars to employees, hiring for consideration and place of taxation pursuant to the judgment of the Court of Justice of the European Union (Case C-288/19 -QM v. Finanzamt Saarbrücken).

    Background: The Court of Justice of the European Union (CJEU) has recently had to rule on the supply by a taxable person to its employees of cars assigned to the taxable person’s business (case C-288/19), and in particular on the question whether such supply to the employee falls within the scope of Article 56(2) of the EU VAT Directive 2006/112, transposed by the first subparagraph of Article 17(2)(7)(b) of the amended Law of 12 February 1979 on value added tax (Luxembourg VAT Law), which determines the place of taxation of the hire of a means of transport for a period exceeding 30 days.

    The CJEU ruled that the first subparagraph of Article 56(2) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2008/8/EC of 12 February 2008, that the provision by a taxable person to his employee of a vehicle for use by the business does not fall within the scope of the Directive if that transaction does not constitute a supply of services for consideration within the meaning of Article 2(1)(0) of the Directive. On the other hand, the first subparagraph of Article 56(2) shall apply to such a transaction if it is a provision of sowing for valuable consideration within the meaning of Article 2(1)(a) and the employee is permanently entitled to use the vehicle for private purposes and to exclude other persons therefrom, in return for a rent and for an agreed period of more than 30 days.

    The CJEU, in its analysis of the relevant legislative provisions, has clarified the interpretation of certain concepts and provisions of EU VAT Directive 2006/112, which should be noted.

    1. The concept of “rental”

    The CJEU points out that, in the absence of a definition of a concept in EU VAT Directive 2006/112 or a reference to the law of the Member States, it constitutes an autonomous concept of Union law which must be interpreted in a uniform manner throughout the territory of the Union, irrespective of the qualifications used in the Member States. According to the CJEU, the conditions which must be met in order to qualify a transaction as : letting of immovable property also apply to determine what constitutes a letting of a means of transport within the meaning of the first subparagraph of Article 56(2) of Directive 2006/112 (Article 17(2)(7)(b), first subparagraph, of the Luxembourg VAT Law), namely the transfer by the owner of the means of transport to the lessee, against a rent and for an agreed period, of the right to use the means of transport and to exclude other persons from using it.

    The fact that the taxable person transferring the right of use is not, under national law, the owner of the means of transport from a legal point of view, but may dispose of it under a leasing contract, does not preclude the provision of that means of transport by that taxable person from being regarded as a supply of services for the hiring out of a means of transport within the meaning of Article 56(2) of Directive 2006/112.

    2. The concept of “for consideration”

    According to the provisions of Article 2(1)(c) of Directive 2006/112 (Article 2(a) of the Luxembourg VAT Law), a supply of services must in principle be effected for consideration in order to fall within the scope of VAT.

    The CJEU recalled in case C-288/19 that it is settled case-law that a supply of services is not “effected” for consideration: A supply of services is not made “for consideration” within the meaning of Article 2(1)(c) of Directive 2006/112 (Article 2(a) of the Luxembourg VAT Law), and is therefore taxable only if there is a legal relationship between the provider of a service and the recipient of that service in which reciprocal services are exchanged, the remuneration received by the provider constituting the actual value of the service supplied to the recipient. This is the case if there is a direct link between the service rendered and the consideration received, which may take the form, in the case of making available a provision of a car, a payment made by the employee to the employer or withholding by the employer of part of the employee’s cash remuneration, or the employee chooses between different benefits offered by the employer in accordance with an agreement between the parties under which the right to use the company vehicle would imply the waiver of other benefits.

    If such a link cannot be determined, the supply of services cannot therefore be classified as a supply of services for consideration within the meaning of Article 2(1)(c) of Directive 2006/112 (Article 2(a) of the Luxembourg VAT Law).

    The CJEU also reiterated its position that the absence of payment of a consideration to the service provider (the absence of payment of a rent) cannot be compensated for by the fact that, for income tax purposes, the private use of the property in question is regarded as constituting a quantifiable benefit in kind and thus, in a way, as a kind of remuneration which the beneficiary would have renounced in return for the provision of the property in question.

    3. Article 26(1) of the EU VAT Directive (Article 16 of the Luxembourg VAT Law)

    Article 26(1) of the EU VAT Directive, which is translated into Article 16 of the Luxembourg VAT Law, requires Member States to treat a transaction as a supply of services for consideration in two cases. The first case, referred to in paragraph 1(a), concerns the use of goods supplied to the business for the private purposes of the taxable person or of his staff or, more generally, for purposes other than those of his business, where the goods have given rise to a right to deduct all or part of the input VAT paid; the second case, referred to in paragraph 1(b), concerns the supply of services supplied free of charge by the taxable person for his private purposes or for those of his staff or, more generally, for purposes other than those of his business.

    The CJEU clarified in case C-288/19 that a supply of services consisting in the use of goods used for the business for the private purposes of the taxable person or for those of his staff or, more generally, for purposes outside his business, which, because the goods in question did not give rise to a right to deduct input VAT, cannot be treated as a supply to. The supply of goods for consideration on the basis of Article 26(1)(a) of Directive 2006/112 (Article 16(1)(a) of the Luxembourg VAT Law) cannot, in the alternative, be assimilated to such a supply on the basis of Article 26(1)(b) of that directive (Article 16(1)(b) of the Luxembourg VAT Law).

    In addition, the CJEU has stated that the objective of Article 26(1) of Directive 2006/112 is to ensure equal treatment of taxable persons and consumers. The provision of paragraph 1(a) of that Article is intended to prevent the non-taxation of goods supplied to a business used for private purposes, whereas the provision of paragraph 1(b) of that Article is intended to prevent the supply of a service free of charge by the taxable person for private purposes.

    In the case of the use of goods allocated to a business for private purposes, this provision is applicable only if the taxable person was entitled to deduct the input tax paid on the acquisition of the goods, on the grounds that taxation of the private use of property which, although assigned to the taxable person’s business, did not give the taxable person the right to deduct input tax at the time of its acquisition, would constitute double taxation contrary to the principle of tax neutrality. The purpose of this provision would therefore be rendered meaningless if the provision laid down in Article 26(1)(b) (Article 16 (1)(b) of the Luxembourg VAT Law) were to apply where the conditions laid down in letter a) of that paragraph are not satisfied, namely that the taxable person did not have, at the time of purchase of the goods, the right to deduct the input tax paid.

    The CJEU also noted that a transaction treated as a supply of services for consideration under Article 26(1)(a) of the EU VAT Directive 2006/112 (Article 16 (1)(a), of the Luxembourg VAT Law), cannot constitute a “hiring out of a means of transport” within the meaning of the first subparagraph of Article 56(2) of the said Directive (Article 17(2), point 7°(b), first subparagraph, of the Luxembourg VAT Law). Consequently, the place of taxation of such a transaction is not determined pursuant to the first subparagraph of Article 17(2)(7)(b) of the Luxembourg VAT Law.

    4. Conclusions

    When a taxable person provides one of his employees with a car assigned to the business, the consequences in terms of VAT are as follows:

    • The car is made available to the employee for valuable consideration (see point II: payment made by the employee to the employer or retention by the employer of part of the employee’s cash remuneration, or choice by the employee between various benefits offered by the employer in accordance with an agreement between the parties under which the right to use the company car would imply renunciation of other benefits) and for an agreed period of more than 30 consecutive days, made available by which the employee obtains the right to use the car and to exclude other persons from using it: the employer provides a service of hiring a means of transport, the place of taxation of which is determined pursuant to the first subparagraph of Article 17(2)(7)(b) of the Luxembourg VAT Law i.e. whose place is deemed to be at the place where the employee is established or has his domicile or habitual residence. If the employee is domiciled or habitually resident in a Member State other than Luxembourg, the taxable person must identify himself in that Member State in order to fulfill his tax obligations there. The basis of taxation is the rent received by the taxable person.
    • The car is not made available to the employee for consideration (see point II), and the taxable person has been granted the right to deduct input tax paid on the acquisition of this car (or the tax paid on the leasing of this car) in whole or in part: the taxable person must declare in Luxembourg the use of the car allocated to the business for private or non-business purposes pursuant to Article 16(1)(a) of the VAT Law. The taxable amount is constituted by the percentage of the use for non-business purposes applied to the amount of expenditure incurred for this car and for which the taxable person has been able to claim the right to deduct all or part of the input VAT paid.
    • The car is only made available to the employee for consideration (see point II), and the taxable person did not enjoy the right to deduct the input tax paid on the acquisition of the car (or the tax paid on the leasing of the car): this transaction does not fall within the scope of VAT.

    Source: Circular N ° 807 (in French)

    Audrey replied 3 years, 3 months ago 1 Member · 0 Replies
  • 0 Replies

Sorry, there were no replies found.

Log in to reply.