Why is this important, and who may be interested?

This decision clarifies the VAT consequences of the provision of company cars to employees and provides guidance on the factors that influence this tax treatment.

In particular, the decision makes it clear that VAT does not always apply on the provision of company cars, and that if it does, practical aspects such as duration of the provision of the cars and location of residence of the employees may have an impact on an employer’s VAT obligations.

As a result, the decision is interesting for any Luxembourg-based employer providing company cars to its employees.


  • A Luxembourg based employer (LuxCo) made company cars available to some of its employees who were resident in Germany: (i) the first employee received the car entirely free of charge and (ii) the second employee paid an own contribution in exchange for the provision of the car, in the form of the deduction of an amount from his salary.
  • LuxCo was VAT registered in Luxembourg under the simplified regime and did not deduct input VAT in Luxembourg on the cars.
  • LuxCo was also VAT registered in Germany, where it declared the provision of the cars as transactions subject to German VAT. The German VAT Authorities agreed on this VAT treatment.
  • Yet, LuxCo challenged the applicability of German VAT on the provision of cars to its German based employees.

Decision of the Court

The CJEU analysed two situations:

  • Provision of a vehicle to an employee free of charge. The provision of a car to an employee free of charge is not subject to VAT when the employer did not deduct the input VAT it had paid on the car.

    However, when input VAT was deducted on the car, then the employer must recognize and apply VAT on the private use of the car on basis of Article 26 of the VAT Directive. In such a case, VAT is then applicable in the country of residence of the employer, and not in that of the employee – even in case of the provision of the company car spans over more than 30 days.

  • Provision of a vehicle to an employee for consideration. When the employee pays a consideration (e.g. a reduction in salary or differently) for the use of a company car, the transaction is to be considered as a normal supply of services, taking the form of a hiring of means of transport. 

    In that case, the transaction is deemed to be performed at the place of residence of the employee when the car is made available for an agreed period of more than 30 days (long-term lease). This, in turn, may trigger VAT compliance obligations in foreign countries, even when the employer is based in Luxembourg – although the future implementation of the OSS mechanism could provide for some relief.


While the decision of the CJEU relates to specific facts, it provides useful guidance about the applicability of VAT on the provision of company cars to employees. It sheds light on the impact of (i) the provision of employee cars for free and for consideration, (ii) the deduction of input VAT on company cars and (iii)  the location of employees benefitting of company cars.

For employers providing company cars, it is strongly advised to review the VAT treatment applied to these transactions and to ensure that all the relevant factors have been considered in determining the applicable VAT treatment. Our VAT team stands ready to assist you in this exercise!