The Supreme Court determines that the transfer of the use of a vehicle to an employee for no consideration is not subject to VAT, even if there is a deduction for leasing.
The Supreme Court has established as a doctrine that the assignment by the taxpayer of the use of a vehicle used for the activity not distorted by the AEAT, to his employee for his private use, free of charge, when said employee does not make any payment or stop receiving a part of his remuneration as consideration and the right of use of that vehicle is not linked to the waiver of other advantages, is a transaction not subject to VAT, even if for such good VAT has been deducted, also in that percentage, for the vehicle leasing.
We inform you that in relation to the deductibility of VAT on mixed-use vehicles assigned to employees, the Supreme Court in its ruling of January 29, 2024 has established as a doctrine that the assignment of the use of a vehicle used for business activities to an employee for his private use free of charge is not subject to VAT when such employee does not make any payment or cease to receive a part of his remuneration as consideration nor is it linked to the waiver of other advantages. Moreover, as this is a non-taxable assignment, the company is not required to charge VAT to its employees for this assignment, even if input VAT has been deducted for such vehicles (50% by application of the presumption established in article 95.3. 2ª of the VAT Law).
Taxation related to the transfer of vehicles to employees, especially when such vehicles can be used for private purposes, has been a subject of constant debate and controversy in the field of tax inspection. This matter has generated numerous administrative and jurisprudential pronouncements both in relation to Value Added Tax (VAT) and Personal Income Tax (IRPF).
Historically, the tax inspectorate has intervened in the regulation of VAT taxation on the transfer of vehicles to employees, sometimes raising the deductibility of the VAT paid on the acquisition of vehicles from 50% to 100%. However, at the same time, it simultaneously assessed an accrued VAT, considering the transfer of the vehicle as an onerous operation subject to VAT, specifically for the part of private use.
However, the Judgment of the Court of Justice of the European Union (CJEU) of January 20, 2021 (case C-288/19) clarified that a vehicle transfer cannot be considered an onerous transaction subject to VAT if the employee does not make any payment, nor waives part of his remuneration, and if the right to use the vehicle is not linked to the waiver of other benefits.
As a result of the CJEU ruling, both the Audiencia Nacional and the Central Economic-Administrative Court (TEAC) adopted a new jurisprudential criterion. In several rulings, it was determined that, if it was not proven that the employee made a payment or waiver of remuneration for the private use of the vehicle, the transfer was not an onerous transaction subject to VAT.
The Tax Administration (AEAT), in line with this change of criterion, issued in August 2023 a Note on issues related to vehicles assigned to employees, adopting the criterion of the CJEU.
Judgment of the Supreme Court of 29 January 2024
Now the Supreme Court has resolved this issue in its ruling of January 29, 2024, where it was debated whether the assignment of the use of a vehicle to an employee, without economic consideration and having deducted the VAT paid on the acquisition of the vehicle, constituted a transaction subject to VAT. The ruling confirmed that, in the absence of economic consideration from the employees, the transfer of vehicles to employees does not constitute a transaction subject to VAT.
By virtue of the case law and the criteria established by the CJEU and the Supreme Court, it is established that the free transfer of vehicles to employees for private use does not constitute a transaction subject to VAT, if there is no economic consideration on the part of the employees and the right to use the vehicle is not linked to the waiver of other benefits.
This is a free transaction, not subject to VAT, and consequently no VAT will have to be charged on it, regardless of whether the VAT paid on the acquisition of the vehicle has been deducted by the employer company or not.
Finally, it should be noted that the transfer of the use of the vehicle to the employee for private purposes will be subject to imputation in the employee’s personal income tax as income in kind, although, since it is considered a free transfer, VAT should not be charged.
For further information, please consult Tax consulting.
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