Making company cars available to employees is a well-established practice in Luxembourg, including for the large number of cross-border employees resident in Germany, Belgium and France.
The arrangements for paying the VAT due in respect of the private use of company cars is a long-standing issue, some of the subtleties of which were clarified early 2021 by the QM Case of the Court of Justice of the European Union (“CJEU”). In this context, the Belgian administration has just clarified with its circular 2023/C/72 dated 1 September 2023 (“the Circular”) the correct Belgian VAT treatment that should be applied in the situation where a foreign employer supplies a company car to an employee resident in France.
As a reminder, the CJEU ruled on 20 January 2021 (QM Case C-288/19) on the VAT taxation of the provision of a company car by an employer to his employee.
The Circular takes up the principles set out in the QM Case and recalls the conditions that must be met for the provision of a company car to an employee resident in Belgium to constitute the “hiring of a means of transport” for consideration, subject to VAT in the employee’s Member State of residence.
Drawing the consequences of the QM ruling, the Circular first recalls that a supply for consideration exists in the following cases:
In the absence of consideration agreed in one of the forms set out in points a) to d) above, the Circular reiterates, in line with the QM Case, that the provision of a company car does not constitute a service rendered for consideration, even if a benefit in kind is declared for direct tax purposes.
Notes ! In the absence of any consideration agreed in one of the forms set out in points a) to d) above, it is worth reminding that the Luxembourg employer would have to declare VAT due in Luxembourg in respect of a deemed service due to the private use of the car, following the common practice in place prior to the QM Case (Article 16.a) of the VAT Law).
If the existence of a service for consideration is thus characterised, the Circular also points out that this service constitutes a long-term hiring of means of transport (taxable at the employee’s place of residence) if :
The Circular draws the conclusion that the following do not constitute long-term leases of means of transport
Note ! The place of taxation of such services must be confirmed on a case-by-case basis.
The Circular also confirms the methods for calculating the VAT due in Belgium when the provision of the company car is taxable in Belgium.
To determine the taxable amount, foreign employers must comply with the Belgian VAT rules on normal value, which apply if the agreed consideration is less than the normal value or if the agreed consideration does not solely consist in money (Article 33, § 2, of the Belgian VAT Code, the Belgian equivalent of Articles 28.3 and 32 of the Luxembourg VAT Law on normal value).
In practical terms, the normal value must be determined as follows:
The Circular allows to consider a flat-rate percentage of 35% for business use.
Note ! For Luxembourg employers, the deduction percentage to be considered should always be 100%, as Luxembourg has not introduced any particular restriction on the right to deduct VAT on means of transport.
The Circular specifies that for taxable persons entitled to a partial VAT deduction, an additional limitation (up to the applicable deduction prorata) may be taken into account.
Note ! If the direct allocation principle is applied, that company car expenses are directly allocated to an income involving a full VAT deduction right, we believe that the weighting of the VAT due by applying the deductible proportion should be disregarded.
If the normal value calculated in this way is higher than the remuneration agreed in accordance with points a) to d) above, the normal value should be used.
Note ! A prior comparative calculation between the actual consideration borne by the employee and the normal value thus defined is necessary in order to ascertain the taxable basis that should be effectively taken into account.
The Circular underlines that the QM Case is of an interpretative nature, and that it should thus be applied retroactively as from 1st January 2013 for the provision of company cars which are taxable in Belgium.
By way of exception, and only for the cases of consideration referred to in points b) to d) above, the Circular allows the situation to be regularised from 1st July 2021. As a further tolerance, the Circular allows the VAT due since that date to be regularised via the One Stop Shop “OSS” system. This tolerance eliminates the need to register retroactively for VAT purposes in Belgium and to file Belgian returns.
These two tolerances do not apply to situation a) above, where the consideration consists of a payment from the employee to the company (e.g. amount deducted from net salary). In this case, the Luxembourg employer must register for VAT purposes in Belgium in order to file returns there since the 1st provision of a company car in respect of a non-prescribed period.
Finally, the Circular admits another tolerance for calculating the VAT due in respect of financial years that are closed : it admits that the result of the calculation of the normal value explained above is considered to be the amount including 21% VAT, which would result in the following calculations but only for closed financial years:
In the light of the above, Luxembourg employers are advised to carry out spontaneous regularisations as soon as possible, either by registering for Belgian VAT or by registering with the Luxembourg OSS one-stop shop.
In this context, we propose our services for a precise analysis of your situation and determination of the VAT amounts due, for taking charge of the Belgian, French or German VAT registrations and/or for joining the OSS system and filing the corresponding returns.
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