Supplementary decision on VAT deduction company cars finally published

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Last year, the Belgian VAT authorities published a decision (ET 119.650 – October 20, 2011) regarding the VAT deduction limitation applicable to company assets and more specifically company cars. The decision would have a large impact on the VAT deduction for company cars as the VAT deduction for such cars (both purchased and leased) would now be limited to the business use of the vehicle with a maximum of 50% (whereas previously the fixed 50% VAT deduction limitation was used).

Only one week later this decision was postponed until further notice for company cars due to the practical difficulties taxable persons could encounter when calculating the actual business and private use of the car.

The Belgian VAT administration has now published its highly anticipated addendum to the afore-mentioned decision (ET 119.650/3 – December 11, 2012). The addendum confirms that there would be 3 different ways to calculate the limitation of VAT deduction for company cars in case no compensation is paid by the employee for the use of the car:

  1. A "real use" system
    In this case, the company needs to keep record of all kilometers driven. The VAT deduction is limited to professional use (work-home is considered to be private use) with a maximum of 50%. It goes without saying that this method will be highly burdensome in practice and very hard to prove.
  2. A lump sum calculation based on work-home distance
    In this case, the distance work-home is calculated for 200 working days per year to which 6,000 private kilometers are added for ‘other private use’. When comparing this to the total mileage, this fraction identifies the percentage of private use of the car (the other part representing the business use). The VAT deduction is subsequently limited to the percentage of business use with a maximum of 50%.
  3. A lump sum limitation to 35% (flat system)
    As the aforementioned methods can cause severe practical difficulties for the taxable persons obliged to apply the VAT deduction limitation, the Belgian VAT authorities have included the option to apply a lump sum VAT deduction percentage of 35%.

The addendum also contains some further detail on the VAT deduction of other movable goods (lump sum of 75%), immovable goods and situations where a compensation is paid by the person using the company car. The full text of the addendum can be found here:

IN DUTCH
IN FRENCH

The decision is applicable as of January 1, 2013. For 2012, VAT payers have the choice to either apply the old system or the new system.

We are of the opinion that all three systems could be challenged on various standpoints, for instance in respect of the standstill provision (see in this respect, inter alia, ECJ C-409/99 Metropol). An example of this is that the flat system has the clear effect to decrease the right of deduction of most undertakings in Belgium.

To be continued…