Long term hiring of vehicles – Changes in the B2C place of supply rules

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As from January 1 2013, the place of supply rules concerning long- term hiring of vehicles in a B2C relationship, including the letting of company cars to employees, will be subject to some significant changes. These changes form part of the VAT package, which lead to a revolution in the place of supply rules for services back in 2010. As the new rules concerning long- term hiring of vehicles may also affect your business, we would like to inform you on the consequences these changes may have for you.

What type of vehicles are affected?
Vehicles like cars, trucks, aircraft, ships, boats, yachts, motorcycles, trailers and railway wagons, with the exception of yachts, are affected by the new rules.

What is long-term hiring of vehicles?
Long-term hiring of vehicles means hiring a vehicle for a continuous period exceeding a period of 30 days. For vessels, the period should exceed 90 days .

What will change?
Until the end of 2012, long-term rental of vehicles is subject to the default rule for B2C services, meaning that the transaction is subject to VAT in the country where the lessor is established.

This VAT regime will change as from January 1, 2013. Under the new rules, the place of supply shifts to the place where the lessee (private person) is established, has his permanent address or usually resides. Consequently, in case a of a long-term hire of a vehicle to a private person established in the European Union, the supplier should charge VAT of the Member State of establishment of the private person, even in case the supplier is not established in that Member State.

What does this mean for you?
All companies involved in the long-term hiring of vehicles to non-taxable lessees in a cross-border situation are impacted by the new rules. This includes companies hiring out means of transport to their employees located in a Member State of the European Union. Please note that, according to ECJ case law (Astra Zeneca UK Ltd, C-40/09), a salary sacrifice in return for a benefit is considered to be a supply of a service. Hence, company cars supplied in return for a reduction in salary should also be treated as long-term hiring of vehicles.
In case your company is offering company cars to their staff established abroad (but within the European Union) for consideration (actual payment or salary sacrifice), your company should charge local VAT of the Member State of establishment of the employee. This includes the letting of company cars to expats, executives, sales agents etc. who are established or residing abroad. To the extent that your company is not yet registered for VAT in the Member State of establishment of the employee, your company should normally also obtain a local VAT number in that Member State.
Please note that these new rules apply for both EU and non-EU companies.