As things stand, fleets pay VAT on leased cars according to the rules of the country in which they are leased. So for example, a French fleet could lease its vehicles from Germany to take advantage of its VAT laws.
Such a move proved lucrative – with rates varying wildly from country to country, the savings could be huge for those choosing wisely. Some countries – including Germany – allow all the VAT to be recovered, whereas others – such as France – allow none.
This trend has seen the larger leasing companies scurrying to set up offices in the countries with the most favourable tax rules. But the European Commission is unimpressed. It says this practice is creating an unfair playing field, with the biggest firms – which have the ability to set up multiple offices – having a distinct advantage over smaller rivals.
Consequently, the EC is set to change the rules. It plans to introduce new laws across the European Union that will see VAT paid in accordance with the rules of the country in which the lessee is based. To return to the previous example, the French firm leasing from Germany would have to adhere to French tax laws.
‘WE have seen a mushrooming of cross-border leasing, but the European Commission says that distorts the market place,’ says Jay Parmar, head of legal services at the British Vehicle Rental and Leasing Association (BVRLA).
He believes the changes – expected to be confirmed in the summer – could have considerable administrative implications for firms that operate fleets across Europe, but thinks the move is a positive one for the leasing market.
‘It’s a fair, level playing field especially for small leasing companies,’ he says.
‘Smaller UK leasing companies can compete without worrying about larger leasing companies with locations elsewhere. That seems sensible and fair.
‘For fleets, customers with offices around Europe currently have to deal with one tax administration. Under the new rules they would have to work out the VAT in all the countries where they have offices. It could create a lot more administration.
Mr Parmar believes some leasing companies will come up with a solution that allows the administration to be simplified.
‘Our advice would be to work with your leasing company to look for a solution,’ he says.
‘The leasing company could centralise its billing process so it doesn’t create too much of a headache for its customers.
‘Talk to your leasing companies and they may be able to assist you.’
Luckily, with the potential for extra paperwork comes the possibility of less cumbersome payment methods. Currently, firms pay VAT in the country they lease from and then claim it back.
Under the new rules, they would not have to pay any VAT when they lease the vehicles, and only pay their own government when they notify it of the deal.
‘It’s quite cumbersome for both VAT administrators and individuals,’ Parmar says. ‘There’s a great opportunity to remove all this.’
A DIFFERENT aspect of the changes relates to daily rental. The BVRLA has lobbied the EC for an exemption from the new rules for short-term rental, to avoid all sorts of bureaucracy.
‘A rental firm at somewhere like Heathrow would have to vet where people are from and whether they are VAT-registered,’ Mr Parmar explains.
‘We have asked that if the vehicle is rented for less than 30 days then the customer is exempt from this rule. So a customer from France renting in the UK would reclaim VAT when they return home, as they have always done.
‘The European Commission has said it will include this in the new rules.’
MR Parmar says the changes are not something that European fleets can afford to ignore.
‘It’s something people need to think about as part of VAT and administration planning,’ he says. ‘The changes are just around the corner now.’
However, not everyone thinks the changes will have such a large impact. Fleet consultant Colin Tourick believes the changes will affect just a handful of fleets, at least in the UK market.
‘Cross-border leasing is an opportunity that has been there for a number of years,’ he says. ‘It’s been sold extensively by the big tax consultants to fleets but few of them have actually taken it up.
‘The changes in the law are not going to make a large amount of difference to the industry.’