The German tax authorities currently assert that such Luxembourg businesses must register and pay VAT in Germany.
Businesses in Luxembourg providing company cars to employees, and allowing both professional and private use, provide a “taxable service” that historically was subject to value added tax (VAT) in Luxembourg—i.e., the place where the employer is established.
With a recent change in Germany’s place-of-supply rules (effective 30 June 2013), the German tax authorities claim the right to tax company cars provided by businesses in Luxembourg to their employees who work in Luxembourg, but live in Germany.
The position of the German tax authorities is that the place of supply of the service is deemed to be the location where the employees have their residence based on new place-of-supply rules that apply with respect to the long-term hiring of vehicles (i.e. company cars).
Administrative burden on Luxembourg businesses
If the position of the German tax authorities were to hold, this would result in an increased administrative burden for Luxembourg businesses offering company cars to their employees (e.g., the businesses would be required to file VAT returns in Germany).
Businesses affected by this interpretation need to monitor the residency of their employees driving company cars because these businesses may be required to register for VAT purposes in Germany and to declare and pay German VAT on a regular basis.
The German Finanzamt Saarbrücken is the agency in charge of all Luxembourg businesses required to register for VAT in Germany.
Some tax professionals have expressed doubts as to whether the German tax authorities’ position of the VAT law is in line with primary EU law, and believe that this position could constitute an unjust restriction of the freedom of movement of workers (which is part of the fundamental freedom of movement of persons) and one of the four fundamental freedoms of EU law.
Read an October 2013 report [PDF 72 KB] prepared by the KPMG member firm in Luxembourg: German VAT on Luxembourgish company cars used by cross-border commuters