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On Tuesday 18 November 2025, KPMG reported on new guidelines (Circular 807-1) issued by the Luxembourg Value-Added Tax (VAT) authorities to clarify the application of the QM case law (C-288/19) on company cars.
The aim of the circular, issued on Tuesday 21 October 2025, is to confirm previous guidance and to specify how the VAT treatment should apply when employers provide vehicles to employees.
KPMG recalled that the Court of Justice of the European Union (CJEU) ruled on 20 January 2021 that a company car qualifies as a long-term hire of a means of transport when the employee may use it privately for more than 30 days, pays a rent and has the vehicle permanently at their disposal. In such cases, VAT is due in the employee’s state of residence, meaning employers must collect and remit VAT in each country where their employees live, mainly Luxembourg, Germany, France and Belgium.
The circular highlights the end of the split between professional and private use for VAT purposes. Under the new guidance, the previous position that would have consisted in reducing the taxable basis by allocating a fraction of the car’s use as “professional” is now explicitly prohibited.
Application of the QM Case Law, confirmed by the VAT authorities:
- employers may no longer divide car use between a professional part and a private part for VAT purposes. The full turnover must be subject to VAT in the state of taxation;
- providing a car for remuneration qualifies as a long-term hire when the employee may use the vehicle privately for more than 30 days and has the car permanently at their disposal;
- a taxable rental exists when the employee pays the employer, when the employer withholds part of the salary, or when the employee chooses the car instead of another agreed benefit. A fixed car allowance counts as consideration;
- the taxable basis must cover all remuneration linked to the car. When the employer leases the vehicle, the basis must be at least the lease payments. When the employer purchases the vehicle, the basis must be at least the depreciation over five years. Additional employer-borne costs must be added;
- for employees commuting from abroad, VAT is due in the country of residence. The authorities confirmed that the One-Stop-Shop (OSS) may be used for VAT due from 1 July 2021, subject to the position in the employee’s state of residence;
- employers that previously declared private use as taxable in Luxembourg but now apply VAT in another EU country may adjust past Luxembourg returns. This applies only to years still open under the five-year statute of limitation, with written notification and supporting documents provided.
EO
