- VAT on Vehicle Provision: The provision of vehicles by a company to its employees is subject to VAT if there is a stipulated consideration, meaning a contractual exchange of services and compensation exists between the employer and employee.
- Conditions for Taxability: A service is considered provided for consideration (thus taxable) when there is a direct legal relationship where reciprocal services are exchanged, such as when an employee agrees to a salary deduction in exchange for vehicle use.
- Territoriality Rules: If both the company and the employee are in different EU member states, the service is treated as a long-term rental, taxable in the employee’s state of residence, according to EU regulations.
- Tax Deduction Rights: VAT incurred on the acquisition of a vehicle intended for employee use is generally deductible if the vehicle is permanently available to an employee with stipulated compensation. However, if the vehicle is used without any salary deduction, the VAT may not be deductible.
- Free Transportation Exemptions: Free transportation provided by an employer to employees (e.g., shuttles to work) does not constitute a taxable service, as there is no compensation or contractual exchange, meaning the VAT on the vehicle acquisition cannot be deducted.
Sources
- Clarification of VAT Regime: The French tax authorities have updated the VAT regulations for companies providing vehicles to employees for both professional and private use, aligning with the CJEU’s “QM” judgment and prior national rulings.
- VAT Implications Based on Consideration: If employees pay any form of consideration for vehicle use (e.g., salary deduction), the transaction is subject to VAT. Conversely, if no identifiable consideration is paid, it typically does not constitute a taxable service, although self-use may still incur VAT if the company previously deducted it.
- Impact on Company Policies: Companies must review their vehicle provision arrangements, assess VAT implications on employee benefits, and update contracts and reporting processes, particularly for cross-border transactions within the EU.
Source PwC
Reference to ECJ Cases
- C-288/19 (QM Judgment): This case, decided on January 20, 2021, clarified that the provision of vehicles to employees could be considered a supply of services for consideration, subject to VAT if there is identifiable consideration involved.
- C-258/95 (Fillibeck): This case, decided on October 16, 1997, established that certain transport services provided by companies (such as shuttles for employees) might qualify for VAT recovery if they meet specific needs related to the organization of economic activity, especially if the vehicle has more than eight seats.
Reference to Court Cases in France
- CAA Lyon Decision (30/3/2017, n° 15LY02973): While not an ECJ case, this national decision is referenced as part of the background clarifying the conditions under which VAT applies to the provision of vehicles to employees.
- TA de Nice Decision (17/01/2020, n° 1800423): Similar to the CAA Lyon decision, this national ruling is cited to support the administration’s guidelines regarding VAT on vehicle provision.
