Indirect Tax News - October 2019

Request for a preliminary ruling to the CJEU on company cars to employees

A German Fiscal Court has asked the Court of Justics of the European Union (CJEU) for a ruling on the VAT treatment of the cross-border provision of company cars to employees (C-288/19, QM).

The CJEU has been asked to consider whether the provision of vehicles amounts to a lease to the employee and also whether the provision of the car is a supply of a service, regardless of whether the employee paid for the vehicle or not. This may result in different VAT consequences when determining the place of performance.

The German tax authorities consider the provision of a vehicle to an employee to be a long-term lease, with consideration normally consisting of a proportion of the work performed by the employee. The place of supply is situated, in accordance with Article 56 (2) of the Council Directive 2006/112/EC, where the recipient has his or her residence. In the case at hand, the employee’s place of residence is in Germany.

By contrast, the tax authorities of the country in which the employer has established its business (in this case, Luxembourg) do not consider the provision of a vehicle to be a lease. Instead, in accordance with Article 26 of the Council Directive 2006/112/EC, Luxembourg considers it a supply of services carried out free of charge. Therefore, from the Luxembourg VAT point of view, the place of supply is situated where the service supplier (the employer) has established its business, resulting in double VAT taxation of the same transaction as a result of the different VAT treatment in the two EU Member States.

Practical advice

Companies for which the current position of the German tax authorities is disadvantageous should appeal against the German tax authorities’ position or at least keep their VAT statements open until the CJEU provides its ruling.

Of course, the request for a CJEU ruling does not address the question of whether the determination of the tax base conforms to EU law.  

Annette Pogodda-Grünwald   

Petra Pinkepank