7.6.1 Case 1

A new car is purchased by an employer who puts the car at the disposal of an employee; the employee uses the car for business as well as private purposes. The employee does not have to pay for the private use.

Under an old Decree (Besluit uitsluiting aftrek omzetbelasting 1968) there is a ‘standstill’ input tax block for the input VAT attributable to the private use of company cars by employees. In practice the employer can deduct all input VAT attributable to the car. On a yearly basis a fixed amount which is applied for income tax purposes is reimbursed to the tax authorities.

When the ‘standstill’ input tax block would be lifted, the private use by the employees would result in a fictitious supply and the employer would have to account for output VAT.

No input tax deduction is allowed in this instance under the UK ‘standstill’ input tax block (on basis of art. 176 VAT-directive) on cars made available for private use.

If the provision of a car and the private us thereof are agreed upon in the labour contract, the provision of the car for private use is seen as a supply for consideration by the employer. The consideration is the (extra) labour the employee performs for the employer (the supply of the labour by the employee to the employer is outside the scope of VAT as the employee is not independent and does not qualify as a taxable person). As a consequence, the employer can deduct all input VAT on the acquisition, the use and the maintenance of the car. After all, the car is only used by the employee for business purposes of the employer.1

For the calculation of the output VAT, the taxable base is either derived from the estimated actual costs or is a fixed amount which is applied for income tax purposes.2

Input VAT on cars is not deductible in France, except under certain specific conditions (e.g. specific activities and specific vehicles for specific purposes).3