The agreements mean that VAT on services, such as short-term vehicle hire, accrues in the country where consumption occurs, i.e. where the vehicle is made available to the customer. However, for long-term rentals over 30 days, VAT will be charged in the country where the renter (or his company) is based.
The new rules will require taxation for VAT on business-to-business supplies of services at the place where the customer is situated, and no longer at that where the supplier is located, as is currently the case.
Vincent Rupied, chair of Leaseurope’s automotive steering group and director of corporate relations at Arval, said: “This system takes into account our industry’s long standing argument that the old rules created distortions of competition.
“In the past, with the place of supply being linked to the place of establishment of the supplier, automotive leasing and rental businesses had an unfair advantage when providing cross-border leases from member states applying lower VAT rates and/or with particular deduction rules for vehicles.”