VAT treatment of cross-border company cars

ABBL Published 02.02.2021

The Court of Justice of the European Union (CJEU) released on 20 January 2021 its decision in the case of company cars made available to cross-border workers. Due to diverging interpretations, Luxembourg entities were facing a risk of double taxation and additional administrative burden in case they provide their German resident employees with company cars also used for private purposes.

The decision provides guidance under which circumstances the assignment of a company car qualifies as “long-term rental of means of transport” triggering for the Luxembourg employer VAT compliance obligations in the country of residence of its employee.


QM is a company established in Luxembourg. It provides investment fund management services and is therefore registered under the simplified regime for VAT purposes in Luxembourg (as it qualifies as taxable person having no input VAT deduction right, the company is only required to submit one simplified VAT return per year).

In the present case, the issue relates to the qualification of the act of putting a vehicle at the disposal of two staff employees. Both of them are working in Luxembourg and living in Germany.

  • One of the cars is put at the disposal of one employee by QM free of charge.
  • The other car is provided to another employee against part of its remuneration.

QM did not apply any VAT in respect with these transactions; neither did the company report these transactions in its VAT returns. However, end of 2014, the company registered for VAT purposes in Germany in order to report taxable services in relation with the act of making the vehicles available.

The competent tax office in Germany (Finanzamt Saarbrücken) issued tax assessments in relation with the return submitted for 2015 and QM filed a complaint before the tribunal in Germany, the latter decided to seek advice from the Court as regards the application of VAT to these transactions.

The transactions at issue in the present case can be summarized as such:

Transaction 1


Transaction 2








Answer from the CJEU & implications

In this case, the Court analyses whether the transactions of “making a vehicle available to an employee” can be considered as “supply of services for consideration”, more precisely “supply of long-term hiring of means of transport”, falling within the scope of VAT. If the answer to this question is affirmative, the Court is asked to determine the implications and VAT obligations for QM.

As regards transaction 1, as the vehicle is put freely at the disposal of the employee by the employer, the CJEU considers that this does not constitute a supply of services for consideration in the sense of the VAT directive.

On the contrary, as regards transaction 2, the CJEU considers that this qualifies as a supply of services against consideration, i.e. as “long-term hiring of means of transport”. This transaction should be subject to VAT in the employee’s country of residence, provided the following conditions emphasised by the CJEU are met:

  • The owner of the means of transport must confer a permanent right to its employee to use the vehicle privately (in this respect, he must exclude any other person from using it);
  • The use of the car must be done against a rent expressed in money (to this purpose, the absence of rent cannot be compensated by the computation of a benefit in kind);
  • Finally, the vehicle must be made available for an agreed period longer than 30 days – such “genuine agreement” existing between the parties as to the duration of the right to enjoy the means of transport has to exist, whether included in the employment relationship or in a separate agreement from the employment contract.

As a result of this decision, QM (the Luxembourg company) has to properly assess the VAT treatment of the supply of vehicle to its German residing employees and would be required to VAT register in their country of residence (i.e. Germany) to declare and pay properly the VAT to the tax authorities.

The decision of the CJEU however leaves a number of practical questions unanswered (e.g. as to the date of effect of this decision with potential penalties or late interest levied, the taxable basis to be considered, the deduction of the input VAT incurred by the employer or adjustment of such deduction).

The ABBL is currently assessing the impact of this decision on its members with a view to discuss the main issues identified with the Ministry of Finance and the Luxembourg tax authorities. ABBL members should in the meantime review the impact of this decision on their remuneration policy.

Expert contribution by Laurence Lhôte, Head of VAT, KPMG Luxembourg and Chair of the ABBL VAT working group


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