VAT: Passenger vehicles made available to employees

Flash info Tax

On the occasion of its commentary on the consequences of a judgment of the Court of Justice of the European Union dated 20 January 2021 (Case C-288/19), the French tax authorities have laid the groundwork for an unprecedented opportunity for companies to no longer bear the additional cost they incur  on expenses related to the use of passenger vehicles since, in France, those expenses may not give rise to deduction. 

In this case, the Court of Justice held that: 

The provision by a company of passenger vehicles to its employees does not constitute a supply of services where it is granted free of charge, and the fact that a benefit in kind is recorded from the employee income tax perspective has no impact on that qualification ; 

However, the company does perform a vehicle rental service subject to VAT (in the employee's country of residence) where consideration is provided, as stipulated in the employment contract or any other agreement, in the form of either a payment by the employee or the waiver by the employee of a specific part of their salary or of another clearly identified and contractually agreed benefit. 

A tax ruling dated 30 April 2025 (ACTU-2024-00164 – VAT – VAT regime applicable to the provision of vehicles by a company to its employees – Rescrit | bofip.impots.gouv.fr) acknowledges this interpretation by the CJEU. It confirms that employers who already provide their employees with vehicles in exchange for such stipulated consideration must apply VAT on this transaction.. 

However, the tax authorities also provide key clarifications regarding the implications of this rental activity for the right to deduct VAT incurred on the acquisition, leasing, repair, and maintenance of the relevant vehicles. 

While expenses related to passenger vehicles (understood as vehicles designed for transporting people or for mixed use) have historically been excluded from the right to deduct input VAT in France, vehicles used primarily (as specified by the Conseil d’État) for a rental activity are not subject to this exclusion. 

In its ruling, the administration specifies that “where the vehicle is intended, from the time of its acquisition by the company, to be permanently made available, in return for consideration, to one of its employees, the VAT incurred on this acquisition is not excluded from the right to deduction. Indeed, this VAT is borne in respect of the acquisition of a vehicle intended to be rented out. As a result, it is fully deductible, without any need to apply a reduction based on the duration of private use.” 

This clarification opens up a new opportunity for companies to recover VAT on vehicle-related expenses incurred for vehicles used by their employees both for professional purposes and for private use. 

To fully benefit from the clarifications provided in this ruling, companies should: 

First, determine whether the current contractual arrangements under which vehicles are made available to employees constitute a supply of services for consideration. If so, the consideration received must be subject to VAT going forward, but also retroactively, with the possibility of correcting past omissions in VAT deductions where applicable; 

If no consideration is currently stipulated in favour of the employer for the provision of the vehicles, companies may consider amending their vehicle policy, as doing so could potentially grant them full deduction rights for input VAT, subject to certain conditions. 

In all cases, this issue should be analysed with regard to all relevant aspects of vehicle provision: the company’s remuneration policy, social regulations, and other tax considerations. 

Our teams specialising in tax and employment law are available to assist you.