Personal Use of Vehicles and Sales Tax: Double Taxation or No Taxation Possible in Cross-Border Assignment Cases
Differences in Treatment Among Member States
The German tax authorities classify the provision of company vehicles for personal use as a long-term lease of a means of transportation to a non-business entity. Accordingly, the place of supply is the employee’s place of residence.
Other Member States, however, treat the provision as a transfer of value without consideration or do not consider it a lease. Taxation therefore takes place at the employer’s place of business.
Double Taxation or Non-Taxation as a Result of Differing Perspectives
If employees reside in the Member State where the employer is based, it is clearly established in which Member State the provision of the vehicle is subject to value-added tax.
However, if the employee does not reside in the Member State where the employer is established, this may result in double taxation or non-taxation; here are two examples:
Non-taxation
The employer’s place of business is in Germany. The employee resides in a Member State where the provision of a vehicle is taxed at the employer’s place of business. Result: Non-taxation.
Double taxation
The employer’s place of business is in another Member State where the provision of a company car is taxed at the employer’s place of business. The employee resides in Germany. Result: Double taxation.
Tax authorities accept taxation conflict
According to the Lower Saxony State Tax Office (LfSt), such double taxation or non-taxation must be accepted. The LfSt does not provide for any corrections, particularly in cases of double taxation.
Furthermore, the LfSt points out that potential non-taxation has no impact on the input tax credit. A reduction in the input tax credit due to the non-taxation of vehicle use is out of the question.
Consequences for Employers and Employees
Employees who work for a company headquartered in Germany and reside in another Member State that taxes the provision of a company car at the company’s headquarters can look forward to non-taxation.
On the other hand, the situation will be highly unfavorable for employees who reside in Germany and work for a company headquartered in another Member State that taxes the provision of a company car at the company’s headquarters. These employees are subject to double taxation.
The Problem of Double Taxation and Measures to Address It
The VAT System Directive applies throughout the EU. Taxing the same transaction in two Member States is therefore technically not possible. As this case demonstrates, however, differing interpretations of the VAT System Directive can still lead to double taxation. There is currently no mechanism in place to prevent such double taxation. Although the European Commission launched a consultation in 2007 to eliminate double taxation, nothing has happened so far. At the EU level, the VAT Committee addresses differing interpretations among Member States and issues guidelines on the matter. However, these guidelines are not binding on Member States. In the case of providing vehicles to employees, they are of no help, as they merely confirm the existence of differing views. Anyone who refuses to accept this has no choice but to file a lawsuit, possibly even in both Member States. This is costly and does not rule out the possibility of conflicting judgments and the case proceeding all the way to the European Court of Justice
Lower Saxony State Tax Office, Ruling of March 26, 2026, S 7117-e-St 183/5510/2026