If a company provides a company car to its employees, directors and business managers and allows them to use the car for private purposes or, more generally, for any purpose not business related, VAT is due with respect to this private use. The rules in force for calculating the VAT due were explained by a circular letter according to which, for the purpose of calculating the VAT due, a distinction has to be made whether the car is put at the disposal of the employee for free or whether a contribution is paid.
When a company car is put at the disposal of the employee for free, the applicable calculation method is based on the benefit in kind value as determined for income tax purposes, i.e. based on the car’s fiscal horsepower and private mileage. In order to avoid double taxation (only 50% of the VAT on car costs is deductible), the benefit in kind value is however not fully subject to VAT, but can be calculated on the basis of a highly advantageous formula.
If the beneficiary of the company car pays a contribution which is higher than or at least equal to the benefit in kind as calculated for income tax purposes, VAT is due concerning the contribution. The contribution paid is then considered to be inclusive of VAT. However, in the event the contribution paid is lower than the benefit in kind, VAT is due on the difference between the contribution paid and the benefit in kind. The VAT due was then calculated on the basis of the advantageous formula.
In a judgment the European Court of Justice decided that for transactions carried out ‘below cost’, VAT was only due on the price actually paid. Belgian legislation, according to which VAT also has to be paid on the supplementary benefit, was therefore in conflict with the judgment of the European Court of Justice.
In order to eliminate all uncertainty, the Belgian tax administration confirmed in a recently published decision that VAT must be derived from the contribution actually paid, and on the additional benefit, the VAT is to be calculated using the advantageous formula.