Following the CJEU’s decision C-288/19, “QM” of January 20th, 2021, the VAT treatment of company cars granted by a company to its employees should be modified for most cases applied by Luxembourg companies.
Following this “QM” case-law, in the event where a company provides company cars to its employees, and provided the below conditions are met, this supply corresponds to a VAT taxable activity on which VAT must be collected by the company and accordingly declared to the VAT Authorities.
Conditions to be met:
- the supply of car should be realized for a period longer than 30 days,
- the supply should be made against remuneration,
- the car can be used for private purposes.
The circular 807bis of the Luxembourg VAT Authorities dated April 28th, 2023, precises that the following should be considered as a remuneration:
- a direct payment made by the employee to the company,
- the allocation of part of the remuneration of the employee to the company car (i.e., a company car budget),
- the choice given to the employee between different benefits in kind including a company car.
In the event where VAT must be collected, the implications for the company should be the following:
- If the employees are residents in Luxembourg, Luxembourg VAT must be collected and reported in the corresponding Luxembourg VAT returns; previous VAT returns filed with the old approach (i.e. correcting the company’s input VAT by adding a deemed turnover) can/should be rectified.
- On the assumptions that some employees are resident of other countries than Luxembourg (i.e., France, Germany, Belgium) the company should be VAT registered in those countries (potentially under a local or MOSS registration) to declare foreign VAT due to these countries.
So far, except for Luxembourg, only Belgium had issued a circular, clarifying the local VAT approach. This approach includes a deemed percentage of professional use and therefore will reduce the taxable basis for VAT to be applied for Belgian resident employees.
For France and Germany, the local application is less clear, and we hope for further guidelines to be issued by the local VAT authorities.
We recommend reviewing the respective car policy, to assess the related VAT risk by modeling risk scenarios for Luxembourg and for the VAT situation in the neighboring countries and finally, to prepare for OSS registration in order to be prepare the respective filings.
Should you have any questions on that matter, please do not hesitate to reach out to the Tax team at Grant Thornton Luxembourg.
- Frank Heykes - Partner, VAT & Indirect Tax