Fleet News

Member states rapped on knuckles over VAT

EUROPEAN Union (EU) member states preventing companies from deducting VAT when buying cars as a fringe benefit for their employees, which are sometimes used for work purposes, had better follow strict EU procedures when doing so, the European Court of Justice (ECJ) has been told.

Its advocate general Eleanor Sharpston has said that such a practice falls outside the terms of the EU’s sixth VAT directive, and to refuse such VAT deductions, they must consult a special European Commission VAT exemptions committee first, which may refer the matter to the EU Council of Ministers.

If member states do not follow this route and such a rule is applied in the medium-to-long term, then a company ‘may recalculate its VAT liability’, concluded the advocate general.

In such an instance, the VAT deduction claimed would have to reflect the proportion of mileage used for business rather than private purposes. The full ECJ usually formally adopts the advice of its advocate generals and its rulings are EU-wide precedents.

This particular case centres on an Italian road maintenance company Stradasfalti Srl, which had bought cars ‘for its staff to use to travel between worksites and offices, to visit various administrations, and to enjoy as a fringe benefit.’

The Italian tax authorities blocked its claims for input tax deductions on VAT returns. It appealed, claiming a five-year VAT reimbursement worth E31,337.21. Stradasfalti argued the Italian government had broken the sixth VAT directive by maintaining a law for 25 years blocking such input tax claims, without proper assessment by the Commission’s VAT committee.

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