Company cars for cross-border workers: be careful about VAT

18 Feb 2021


Dorothée David

In a judgement issued on 20 January 2021[1], the Court of Justice of the European Union (CJEU) made some significant clarifications about VAT (Value added tax) on company cars for cross-border workers.

In this case, a Luxembourg company had provided two company vehicles to two of its employees who worked in Luxembourg and lived in Germany. The two cars were used for private and professional purposes. One of the employees enjoyed this benefit free of charge, while the other employee’s salary was reduced by a certain amount as consideration for the vehicle.


The German courts referred the matter to the CJEU to find out whether the Luxembourg company might be subject to VAT in Germany for providing these two company cars.

In order to respond to this question, the Court based its argument on article 56, paragraph 2 of the Directive on the common system of value added tax[2], which determines the place of taxation for VAT purposes for the “hiring of means of transport”. In particular, the Court specified that this place of taxation is “the place where the non-taxable person to whom the vehicle is hired is established, has his or her permanent address or usually resides”.

The CJEU felt that the provision of a company vehicle may be subject to VAT where the employee lives (in this case, in Germany), including in particular when the following conditions are fulfilled:

  • the provision of the vehicle must constitute a supply of services for consideration within the meaning of the Directive, which is particularly the case when the employee gives up a part of his or her remuneration as consideration for it;
  • the employee must have a permanent right to use the company vehicle for private purposes and to exclude other persons from using it;
  • the company vehicle must be made available to the employee for more than 30 days.

In this case, as these conditions were fulfilled for one of the two vehicles (i.e. the one for the employee who gave part of his or her remuneration as consideration for it), the Luxembourg company should regard Germany, the place of residence of the employee in question, as the country in which to pay the corresponding VAT.

The Court also specified that the fact that the Luxembourg company was not the owner of the vehicle, but that it could rent out the vehicle under a lease agreement, cannot prevent the application of article 56 of the Directive.

More information about this judgement by the CJEU can be found in Circular no. 807 of 11 February 2021 (in French) issued by the Director of the Registration and Estates Department  (Directeur de l’enregistrement, des domaines et de la TVA), including in particular when it comes to providing company vehicles free of charge and the consequences in terms of VAT.


[1] CJEU, judgement of 20 January 2021, Case C-288/19.

[2] Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.