German VAT on Luxembourgish company cars used by cross-border commuters
Luxembourgish businesses providing company cars to their employees for both professional and private use perform a taxable service, which used to be subject to VAT at the place where the employer is established (i.e. Luxembourg).
Following a recent change in the place of supply rules, which came into force in Germany on 30 June 2013, the German tax authorities claim the right of taxation on the provision of company cars by Luxembourgish businesses to employees who work in Luxembourg and live in Germany. The German tax authorities state that the place of supply of the service is deemed to be where the employee has his place of residence based on the new place of supply rule applicable to long-term hiring of vehicles (i.e. company cars).
Should the interpretation of the German tax authorities hold, this change would lead to an increased administrative burden for Luxembourg businesses offering company cars to their employees (i.e. filing of VAT returns in Germany). Affected businesses should closely monitor the residency of their employees driving company cars and they may be obliged to register for VAT purposes in Germany to collect and report German VAT on a regular basis. The German “Finanzamt Saarbrücken” is in charge of all Luxembourgish businesses obliged to register for VAT in Germany.
However, there are some doubts as to whether this interpretation of the VAT Law is in line with primary European Law. KPMG Luxembourg is currently analyzing whether this interpretation of the German tax authorities constitutes 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 the Common Market.
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