VAT & Company Cars in France

What the Case Law Says

The CJEU ruled that:

• The free provision of a vehicle to an employee — even if considered a benefit in kind — does not constitute a taxable service;
• However, if there is a clear consideration — such as a direct payment or a salary deduction stipulated in the employment contract — it is deemed a rental service subject to VAT, which must be paid in the employee’s country of residence.

What the Tax Authority Clarifies

The French tax administration confirms that VAT is due in such cases involving consideration. More importantly, it goes further:

It now allows full VAT deduction on the purchase, lease, maintenance, and repair of the vehicles concerned — provided that the vehicle is clearly assigned from the outset to a rental activity involving an employee.

This marks a significant departure from the longstanding rule excluding VAT deduction for passenger vehicles used for mixed purposes.

Opportunities for Businesses

In practice, this means companies can:

• recover VAT on vehicles made available to employees for a fee;
• and potentially claim retroactive adjustments where deduction rights were previously missed.

Recommended Next Steps

We advise companies to:

1. analyse the current terms of vehicle provision and determine whether there is a contractually identifiable consideration;
2. assess the opportunity to revise employment contracts or fleet policies to benefit from this favourable VAT regime;
3. consider any related impacts (labour law, payroll, direct taxation) before implementation.