Company cars for employees abroad: when VAT follows the employee’s residence
One company car – two possible VAT treatments
When a business makes a vehicle available to an employee on a long-term basis for both business and private use, one question is crucial for VAT purposes: does the employee provide consideration for the car, or is the vehicle supplied free of charge?
The answer determines not only whether VAT is due but, in a cross-border employment situation, also which country has the right to tax the supply.
In the “QM” case, the Court of Justice of the European Union confirmed that a long-term hiring requires a supply for consideration. The consideration may take the form of a payment, a salary sacrifice or the waiver of another identifiable benefit. Private use of a company car does not, on its own, make the arrangement a hiring for consideration.
Germany takes a broad view of the link with employment
The German Federal Fiscal Court subsequently assessed the facts of the case. Where private use was individually agreed in the employment contract and actually exercised, part of the employee’s work could constitute consideration for the use of the car. The arrangement was therefore treated as a barter-like transaction and as the long-term hiring of a means of transport.
In guidance dated 3 March 2026, the German Federal Ministry of Finance incorporated this approach into its administrative rules. A written clause is not essential: an oral agreement or established company practice may also be sufficient. Under the German guidance, a vehicle made available for private use for a certain period, rather than only occasionally, is generally regarded as being supplied for consideration.
For a long-term hiring to a private customer, the place of supply is generally the employee’s country of residence.
French employer – employee resident in Germany
If a French company makes a company car available on a long-term basis for the private use of an employee resident in Germany, Germany may regard the supply as taxable there. The risk is particularly relevant where the car forms part of the remuneration package or is provided under an established company practice.
The French tax administration applies a narrower test and generally requires expressly agreed consideration. In the absence of a payment, a specific salary sacrifice or the waiver of an identifiable benefit, France does not normally treat the arrangement as a hiring for consideration. If input VAT on the vehicle was deducted, a deemed supply taxable at the employer’s place of establishment may nevertheless arise.
The same arrangement may therefore be treated by Germany as a hiring for consideration taxable where the employee lives and by France as a free-of-charge deemed supply taxable where the employer is established. Double taxation is consequently a real risk, although not an automatic outcome. The contract, actual company practice and input VAT deduction must all be reviewed.
German employer – employee resident in France
In the reverse situation, the German classification as a long-term hiring for consideration generally means that the supply is taxable in France rather than Germany.
France will still examine whether consideration was expressly agreed. Businesses should therefore not rely solely on the German classification and should assess the French treatment separately. Depending on the circumstances, foreign VAT may be reportable through the One-Stop Shop.
The German transitional relief ended on 30 June 2026
The German guidance of 3 March 2026 generally applies to all open cases. Limited relief was available only for transactions carried out up to 30 June 2026: where a company car was exceptionally supplied free of charge, the previous administrative treatment of the place of supply could still be applied.
For later transactions, businesses should apply the new German administrative position.
A further case remains pending before the BFH
A further case is pending before the German Federal Fiscal Court under reference V R 42/25. It again concerns the private use of company cars supplied by a company established elsewhere in the EU to employees resident in Germany. The court has been asked to decide whether, and under what conditions, this constitutes a supply for consideration taxable in Germany.
Until the court rules, the current administrative position remains relevant. The pending case is nevertheless an additional reason to document affected arrangements carefully and, where appropriate, keep assessments open to appeal.
What businesses should review now
- In which country is the employee resident?
- Is private use based on a written agreement, an oral understanding or established company practice?
- Does the employee give up salary or another identifiable benefit?
- Was input VAT deducted on the purchase or lease of the vehicle?
- Are there registration, filing or OSS obligations in the employee’s country of residence?
Do you provide company cars to employees abroad? We can review the contractual terms, place of supply and reporting obligations on both sides of the border. Contact: contact@fradeco.de
Updated: 22 September 2026. This information does not replace a case-by-case review.
Official sources
If you have further questions, our accountants will be happy to provide you with personal advisory. Additionally, we are available to advise you throughout France and Germany by phone and video conference. Your Franco-German tax consultancy FRADECO.
Disclaimer
Although the greatest possible care has been taken in the preparation of this newsletter, we reserve the right to make changes, errors, and omissions. The abstract legal presentation in this newsletter is no substitute for individual civil and tax law advice on a case-by-case basis. Subsequent changes to the legal framework, the views of the German or French tax authorities or case law, including with retrospective effect, are possible.
