Luxembourg VAT authorities publish a Circular regarding the VAT treatment of the use of company cars by employees

On 20 January 2021, the Court of Justice of the European Union released its decision in a German referral asking whether Article 56(2) of the VAT Directive is to be interpreted as meaning that “hiring of a means of transport” should include the use of company cars by employees. Following this court case, the Luxembourg VAT authorities published Circular n° 807 dated 11 February 2021.

The Circular repeats the definitions of “Hiring”, of “effected for consideration” and of “assimilated supply of services” such as they were decided by the CJEU and concludes the following. If a VAT taxable person makes a vehicle, which forms part of their business assets, available to one of his employees the following VAT consequences occur:

• Where the vehicle is provided for an agreed period of more than 30 days to the employee for their exclusive use (i.e., they can prevent others using it) for a remuneration this should be a supply for VAT purposes. Remuneration is deemed to include a payment by the employee to the employer, a reduction of the employee’s salary or the employee choosing to have a company car as opposed to other benefits offered by the employer. This supply should be considered to be the hiring of a means of transport, which should be taxed where the employee is established, has his permanent address or usually resides. The VAT taxable basis is the rent received by the employer.
• Where the vehicle is not provided to an employee against remuneration and the (Luxembourg) employer deducted at least a part of the VAT incurred on the acquisition or the lease of the vehicle, an assimilated supply of services is deemed to take place in Luxembourg. The VAT taxable basis is the percentage of use for purposes other than those of business purposes applied on the costs incurred for the vehicle on which the employer deducted (at least part of) the VAT.
• Where the vehicle is not provided to the employee against remuneration and the (Luxembourg) employer did not deduct at least a part of the VAT incurred on the acquisition or the lease of the vehicle, no supply should be deemed to take place for the purposes of VAT.

Next steps

For Luxembourg employers which offer company cars to the employees this may lead to additional VAT registrations and/or record keeping requirements. Therefore, it is recommended that employers review their arrangements to determine how this decision impacts their offerings to employees.