- German Tax Practice: German tax authorities treat company cars provided for private use as taxable rentals, taxed at the employee’s residence, unless no fee or salary withholding is involved.
- ECJ Ruling: The ECJ ruled on 20.01.2021 (C-288/19) that without payment, salary deduction, or waiver of other benefits by the employee, the provision of a company car is not taxable as a rental but considered a free transfer of value, contingent on input tax deduction.
- Practical Impact: The ECJ decision applies to specific individual cases and doesn’t universally exempt company car provision from VAT. Companies should review contracts for gratuitousness and may benefit from the ruling in cross-border scenarios.
- Domestic Company Implications: If a vehicle is fully allocated to the company with input VAT deducted, the free transfer is taxed at the business operation location, potentially benefiting from lower domestic tax rates compared to the employee’s residence country.
- Foreign Company Implications: Foreign companies providing company cars to employees in Germany without charge are not subject to German VAT and can seek refunds for any incorrectly paid VAT in non-final tax periods.
Source KMLZ
