Spain’s Supreme Court issued a decision on 29 January 2024 on the VAT treatment of vehicles provided to employees by the employer. The court concluded that the provision of a company car to an employee free of charge is not subject to VAT—there is no VAT transaction between the employer and the employee because the employer does not receive any consideration from the employee. The Supreme Court decision is relevant for companies that acquire vehicles from third parties and assign them to their employees to use for both professional and private purposes (“mixed use”).
Under Spain’s VAT law, input tax may be deducted when a VAT payer makes acquisitions or imports goods and services that are directly and exclusively used in its business activities. In the case of passenger cars, the use for business purposes is presumed to be 50%.
Spain’s tax authorities have taken the position that where mixed use vehicles are provided to employees, the value of the benefit in kind provided to the employee should be determined based on the availability of the vehicle for private purposes, i.e., the period of time that does not correspond to the employee’s workday. In this case, the taxpayer must charge the employee with the VAT corresponding to the value of the benefit in kind. Since the provision of a vehicle to an employee is classified as a self-consumption of services under the VAT law, the tax authorities consider the provision of a company vehicle to an employee for their private use as being subject to VAT even in the absence of consideration, with the result that the employer can deduct the VAT paid on the acquisition of the vehicle.
In issuing its decision, the Supreme Court rejected the approach of the Spanish tax authorities, instead relying on the 2021 decision of the Court of Justice of the European Union (CJEU) in the Finanzamt Saarbrücken case (for prior coverage, see the article in the June 2021 issue of Indirect Tax News). The CJEU ruled in that case that the provision of a company car to an employee free of charge is not subject to VAT as a long-term hiring of a means of transport and made a distinction between two situations:
Álvaro Gómez-Elvira
Maria Gonzalez Ramos
BDO in Spain
Under Spain’s VAT law, input tax may be deducted when a VAT payer makes acquisitions or imports goods and services that are directly and exclusively used in its business activities. In the case of passenger cars, the use for business purposes is presumed to be 50%.
Spain’s tax authorities have taken the position that where mixed use vehicles are provided to employees, the value of the benefit in kind provided to the employee should be determined based on the availability of the vehicle for private purposes, i.e., the period of time that does not correspond to the employee’s workday. In this case, the taxpayer must charge the employee with the VAT corresponding to the value of the benefit in kind. Since the provision of a vehicle to an employee is classified as a self-consumption of services under the VAT law, the tax authorities consider the provision of a company vehicle to an employee for their private use as being subject to VAT even in the absence of consideration, with the result that the employer can deduct the VAT paid on the acquisition of the vehicle.
In issuing its decision, the Supreme Court rejected the approach of the Spanish tax authorities, instead relying on the 2021 decision of the Court of Justice of the European Union (CJEU) in the Finanzamt Saarbrücken case (for prior coverage, see the article in the June 2021 issue of Indirect Tax News). The CJEU ruled in that case that the provision of a company car to an employee free of charge is not subject to VAT as a long-term hiring of a means of transport and made a distinction between two situations:
- Provision of a vehicle used in the business activity to an employee without consideration. The provision of a vehicle in these circumstances cannot be classified as the rendering of services for consideration; and
- Provision of a vehicle used in the business activity to an employee in exchange for monetary compensation. This may be classified as the rendering of services for consideration if certain requirements are met.
Key takeaways
Spanish companies that provide company cars to their employees should review their policies and assess the potential VAT impact of the Supreme Court decision.Álvaro Gómez-Elvira
Maria Gonzalez Ramos
BDO in Spain