According to the BMF (letter dated August 27, 2004), it can be assumed in exceptional cases that the provision for use is an unpaid service if private use is limited to such an extent that it does not have a financial impact on the salary assessment. This may only be assumed if the employee is provided with a company car for private use for a special occasion or special purposes and only occasionally (i.e. not more than 5 calendar days within any one calendar month). In these cases the place of performance for the provision of benefits in kind shall continue to be based on the firm’s (employer’s) place of business or the latter’s permanent establishment (Section 3f of the German VATA (USTG).
1. Previous regulation governing the (paid) provision of company cars
The place of performance with respect to the provision of vehicles to non-firms was previously based on the company’s head office or principal place of business (Section 3a para. 1 of the German VATA). Therefore, the private use of a company car by the employee has thus far been subject to VAT at the company’s place of business or permanent establishment.
2. New regulation governing the (paid) provision of company cars
With the Mutual Assistance Directive Implementing Act (AmtshilfeRLUmsG), a new regulation governing the place of performance was introduced for the long-term rental of transportation means to non-firms. In these cases, the place of performance is now based on the beneficiary’s residence or place of business (Section 3a para. 3 no. 2 of the German VATA, latest version). This new regulation has been in place since June 30, 2013.
With its regulatory letter dated September 12, 2013, the BMF has clarified that the provision of a company car to an employee for private use is now also deemed to be a paid rental of a transportation means in accordance with the regulations. The new regulation thus also applies to the levying of VAT on the private use of company cars.
Therefore, if an employee is provided with a company car for private use (private trips, trips from home to the workplace, trips home to the family), the place of performance shall now be based on the employee’s residence.
In the case of the provision of a company car by a German firm to an employee residing within Germany this is not a problem since the VAT continues to be levied in Germany.
3. Cross-border provision of company cars
The levying of VAT on the provision of company cars is not regulated in a uniform manner across the EU. With respect to the cross-border provision of company cars this may lead to conflicts with applicable regulations in other countries.
3.1. VAT approach according to German law
According to the new German regulation, the provision for use in the applicable country of residence is subject to VAT. If the employee is residing abroad, the firm in Germany must register for VAT in the employee’s country of residence and pay VAT there. In this case no VAT is payable in Germany.
On the other hand, foreign firms must register for VAT in Germany if an employee residing in Germany is provided with a company car for private use.
3.2. Possible conflicts in the case of diverging rules outside Germany
The change of the place of performance to the employee’s residence derives only from the fact that the provision of the company car qualifies, according to the German fiscal authority, as a paid rental service. In countries where the provision of a company car is not deemed to be a rental transaction, the place of performance is, by contrast, based on the employer’s place of business. In principle this may lead to the following situation:
- The private use of the company car is not subject to taxation as each country assigns to the other country the right to levy sales tax.
- Double taxation occurs as the private use is subject to VAT in both countries.
Provision of a company car by a German firm to employees residing abroad: According to German law, such private use shall be taxed in the country of residence. However, notwithstanding German law if in the country of residence the firm’s place of business is deemed to be the place of performance, no VAT is levied in either country. On the other hand, if a company car was to be provided by a firm outside of Germany to an employee residing in Germany, both countries would levy VAT on such private use.
In some countries there is either no or only limited VAT deduction for vehicle expenditure, with no VAT being levied on private use. In principle, this may also lead to either of the following situations:
- The private use of the company car is not subject to taxation since such private use is not subject to VAT in one country, although the other country has granted VAT deduction on expenses related to the use of such cars.
- The private use of the company car is subject to double taxation since VAT is levied on such private use, although the other country does not grant VAT deduction on such car related expenses.
Provision of a company car by a German firm to employees residing abroad: Even if, notwithstanding the German regulation, VAT was not to be levied on any private use in another country, the tax deduction would be maintained in Germany. On the other hand, if a foreign firm was to provide a company car to an employee residing in Germany, Germany would, as the country of residence, levy VAT on any private use, even if no VAT deduction could be asserted in the other country.
In such cases it is recommended that the vehicle expenditure be born and declared in the country in which no VAT deduction ban exists.
However, it can be assumed that individual countries will respond differently to the possibility of non-taxation, due to the different rules in place. For example, in Austria – where the provision of a company car is normally not subject to taxation, since there is a tax deduction ban for vehicle expenditure – a draft proposal was recently drawn up, according to which the provision of a company car by a German firm is, according to the German interpretation of the law, deemed to be a paid long-term rental service and thus subject to VAT. In the reverse case, i.e. taxation of the provision of a company car in Germany, the tax deduction ban, however, will be maintained based on the current legislation.
Thomas Jäger, Partner, Tax Advisor
Wolfgang Störringer, Tax Advisor