A company car that an employee may also drive privately is never a neutral matter for VAT. If that employee lives in a different country from the one where the employer is established, the tax may become due not at the company’s seat but at the employee’s place of residence. For a company with staff in Germany, that usually means registering here.
The Federal Ministry of Finance carried the relevant case law into its administrative guidance by circular of 3 March 2026 (III C 3-S 7117-e/00003/005/058). For company car arrangements within Germany this changes little: the authorities state expressly that existing practice may in principle be retained and that the amendments are made by way of addition and clarification. The position is different as soon as the employee’s residence and the employer’s seat lie in different countries.
Everything turns on one question: for consideration or not?
There are two possible treatments. If the employee provides consideration in return for the vehicle, the arrangement is a letting for consideration. Without consideration, it may instead be a deemed supply under § 3 Abs. 9a Nr. 1 UStG, the German VAT Act, provided the vehicle gave rise to a full or partial input VAT deduction.
The distinction governs more than whether VAT arises at all. In a cross-border employment relationship it also decides which country collects it. A deemed supply is taxed where the business is established. A supply for consideration, by contrast, follows the rules on the hiring of means of transport, and those point to an entirely different address.
What the Court of Justice held, and what the BFH made of it
In Finanzamt Saarbrücken (judgment of 20 January 2021, C-288/19) the Court of Justice of the European Union held that making a vehicle available to an employee is not a supply of services for consideration where the employee makes no payment, uses no part of their cash remuneration for it, and does not forgo another benefit under an agreement between the parties. Merely permitting private use is therefore not enough.
The Bundesfinanzhof, Germany’s Federal Fiscal Court, then took a narrower view (judgment of 30 June 2022, V R 25/21). Where private use is individually agreed in the employment contract and is actually taken up, the direct link required between the vehicle and the work performed is present. The arrangement is then treated as a barter-like transaction under § 3 Abs. 12 Satz 2 UStG: the consideration consists of part of the work performed.
The circular of 3 March 2026 carried that line into the German VAT application decree, the „Umsatzsteuer-Anwendungserlass“: the question of consideration is now dealt with in section 15.23 para. 9, the place of supply in section 3a.5 para. 4. A written clause is not essential. Under the sentence newly inserted there, the necessary connection will as a rule also exist where the provision rests on oral arrangements or on other circumstances of the employment relationship, such as established company practice.
The Bundesfinanzhof sees no conflict with the Court of Justice in this. The Luxembourg judgment answered only the question referred by the tax court, and that question had left the barter-like transaction unmentioned.
The consequence: the place of supply moves to the residence
A supply for consideration is, for VAT purposes, the hiring of a means of transport. Once it runs for more than 30 days without interruption, it ceases to be short-term under § 3a Abs. 3 Nr. 2 Satz 2 Buchstabe b UStG. For long-term hiring to a customer who is not a taxable person, sentence 3 of the same provision fixes the place of supply: it is made where the customer has their residence or seat.
A company car is almost always made available for longer than 30 days. The employee’s place of residence is therefore the decisive connecting factor. Neither the employer’s seat nor the place where the work is actually done changes that.
| Employee’s residence | Employer’s seat | VAT arises |
|---|---|---|
| Germany | abroad | in Germany, even without an establishment here |
| abroad | Germany | in the country of residence, not in Germany |
| Germany | Germany | in Germany, as before |
Employee resident in Germany, employer established abroad
This is the situation the case law revolves around. Before the Bundesfinanzhof, the employer was a Luxembourg public limited company with no fixed establishment in Germany; both of its employees lived here. The outcome: the arrangement was taxable in Germany.
For a company without a German seat, this creates an obligation that its own law gives no reason to expect. It owes German VAT without holding an establishment here, and it has to declare it. If you employ staff in Germany and provide them with vehicles, examine this question independently of how the matter is treated in your country of establishment.
Employee resident abroad, employer established in Germany
In the other direction, the supply moves out of Germany. Where a German company provides a cross-border commuter resident in a neighbouring country with a company car on a lasting basis, the supply is not taxable in Germany on the German view, but in the country of residence.
That is not relief, it is a shift. The filing obligation then arises there, and whether that country also classifies the arrangement as a letting for consideration is a matter for its own law. This check belongs at the outset, not in the middle of an audit.
Where two countries classify differently
Whether a vehicle arrangement is made for consideration is not answered uniformly across Europe. Several tax authorities require an expressly agreed consideration more strictly than German practice has done since the March 2026 circular. Two classifications can then sit side by side: in Germany a letting for consideration at the employee’s residence, in the country of establishment a deemed supply at the company’s seat.
A double charge becomes possible, though it is not automatic. The decided case shows how little the German charge depends on the treatment elsewhere: in Luxembourg the arrangement was neither taxed nor accompanied by an input VAT deduction. German liability arose all the same. What matters is the contractual terms, the practice actually followed in the business, and the input VAT position.
Measuring: value of the consideration or costs incurred
Once it is settled that German VAT is due, the taxable amount follows the route by which the arrangement was classified. Where the provision is treated as a supply for consideration in the form of a barter-like transaction, § 10 Abs. 2 Satz 2 UStG treats the value of each supply as the consideration for the other. What is measured is therefore the value of the proportionate work the employee performs in return for the use. The VAT itself does not form part of the consideration.
Where there is no consideration and the provision is a deemed supply free of charge, § 10 Abs. 4 Satz 1 Nr. 2 UStG applies instead: the taxable amount is the costs incurred in making the supply, to the extent that they gave rise to full or partial input VAT deduction. That includes the acquisition cost of the vehicle, provided it is allocated to the business. From 500 euros upwards, that cost is spread evenly over the adjustment period under § 15a UStG, which is five years for a vehicle.
Where the place of supply lies in the employee’s country of residence, the taxable amount is governed by the law of that country as well. The two German provisions apply only to the extent that the transaction is taxable in Germany.
Declaring: registration or One-Stop Shop
Where VAT is due in another Member State, you can either declare it there or use the One-Stop Shop. § 18j Abs. 1 Nr. 2 UStG covers, for taxable persons established in the Union, services supplied to customers within the meaning of § 3a Abs. 5 Satz 1 UStG in another Member State. The reference is to the category of customer and not to the narrower list in sentence 2, so the long-term hiring of a vehicle to an employee falls within it.
Participation is optional, but once chosen it applies to all covered supplies. Input VAT cannot be recovered through this route; the refund procedure remains available for that. For a company with only a handful of vehicles abroad, the One-Stop Shop is usually the leaner option, because it avoids a separate registration in the country of residence.
The concession ended on 30 June 2026
The principles set out in the circular apply to all open cases. A time-limited concession existed only for supplies carried out up to 30 June 2026: where a vehicle was exceptionally provided without consideration, the earlier administrative position on the place of supply could still be applied. For all later supplies, the new position governs.
A further case is pending
A further case is pending before the Bundesfinanzhof under file number V R 42/25, on appeal from the Finanzgericht Rheinland-Pfalz (judgment of 27 June 2024, 6 K 1073/22). The question is whether, and on what conditions, the provision of company vehicles to employees resident in Germany by a company established in another EU country is to be treated as a taxable supply for consideration in Germany.
Until a decision is handed down, the administrative position remains authoritative. By documenting the affected cases carefully and keeping the assessments open procedurally, you retain the option of benefiting from a later ruling.
What to check now
- Record the residences. Where do the employees live who are allowed to use a vehicle privately?
- Review the arrangements. Is private use set out in the employment contract, agreed orally, or established through company practice?
- Identify the consideration. Does the employee pay anything, give up salary, or forgo another identifiable benefit?
- Clarify the input VAT. Was VAT deducted on purchase or on the lease payments? Without consideration, that is what determines whether a taxable supply arises at all.
- Measure the duration. Does the arrangement run for more than 30 days without interruption?
- Determine the taxable amount. Is it the value of the proportionate work, or, where the vehicle is provided free of charge, the total of the costs that gave rise to input VAT deduction?
- Check the obligations in the other country. Is there a registration or filing requirement, and is the One-Stop Shop an option?
- Look back at earlier periods. Supplies carried out from 1 July 2026 onwards no longer fall under the concession.
The ongoing recording of such transactions forms part of German Accounting & Reporting; the filings and correspondence with the tax office belong to German Tax & Compliance. How cross-border employment is handled in payroll is set out under German Payroll & HR.
Sources: §§ 3 Abs. 9a and Abs. 12, 3a Abs. 3 Nr. 2 and Abs. 5, 10 Abs. 2 and Abs. 4, 15a, 18j UStG; CJEU, judgment of 20 January 2021, C-288/19 (Finanzamt Saarbrücken); BFH, judgment of 30 June 2022, V R 25/21; BFH, pending case V R 42/25; circular of the German Federal Ministry of Finance of 3 March 2026, III C 3-S 7117-e/00003/005/058, on the provision of vehicles to employees; sections 3a.5 para. 4 and 15.23 para. 9 UStAE.