Country-specific updates: Germany

German Federal Ministry of Finance: private use of a vehicle fully assigned to the company is subject to VAT as a benefit in kind

In a letter dated 7 February 2022, the German Federal Ministry of Finance, the BMF, clarified the VAT treatment of non-company (private) use of electric vehicles and hybrid electric vehicles (including bicycles) as well as the provision of electric bicycles and bicycles to employees.

The letter stated that the private use of a vehicle that is fully assigned to the company is subject to VAT as a benefit in kind according to Section 3 Paragraph 9a No. 1 German VAT Act.

The figures determined for income tax purposes, according to the so-called 1% rule, can be used as a basis for determining the value of such benefits in kind according to Section 15.23 paragraph 5 of the German VAT Decree. However, the special income tax regulations for electric and hybrid vehicles will not apply for VAT purposes.

The BMF explains in its letter, among other things, the principles of the gross list price and input VAT deduction for vehicles. A new Section 15.24 on input VAT deduction and VAT on bicycles used (partly) for business purposes has been adapted in the German VAT Decree.

Furthermore, the BMF points out that the term “vehicle” is to be equated with the term “motorized vehicle” and thus also includes electric bicycles that are subject to license plate, insurance or driver's license requirements.

The BMF also changed and supplemented the German VAT Decree in accordance with its letter. The principles set out in this letter are to be applied in all open cases. However, the BMF notes that the effects of the ECJ judgment in case QM C-288/19 from 20 January 2021 are currently under discussion with the highest tax authorities of the federal states and that a separate letter might be issued, if necessary.

DLA Piper comment:

The use of vehicles for VAT purposes, input VAT deduction and the provision of vehicles to staff is an often-discussed topic and a permanent theme in VAT audits. The taxable person has to differentiate between the allocation of the vehicle to the company and the (partly) private use of the vehicle to be able to apply the VAT provisions correctly. As pointed out by the BMF the VAT rules apply to all motorized vehicles.