Advocate General (“AG”) Mengozzi of the European Court of Justice (“CJ”) delivered his opinion on the joint cases on the VAT deduction adjustment for staff benefits based on the VAT Deduction Exclusion Decree (“DED”) on January 28, 2010. In his opinion, the DED adjustment for company cars, among other items, is permissible.
In the Netherlands, a deduction restriction applies to the VAT incurred on the provision of staff benefits, which includes the private use of a company car, that exceed a threshold amount of EUR 227 per person per year.
This deduction restriction deviates from the European VAT rules. This is because the European rules equate providing staff benefits with providing a service to a third party in exchange for a fee. The company then owes VAT on this “internal service,” but has the right to deduct the VAT paid in relation to the expenses incurred. The method of taxation is, therefore, different. Moreover, European legislation does not specify a threshold amount. On balance, however, both Dutch and European legislations charge VAT on the staff benefits provided.
Within the European VAT system, the deviation the Dutch rules make is only permitted under strictly defined conditions. One of these is that the deduction restriction may not be general in nature, but must regard sufficiently strictly defined categories of goods and services. The Dutch rules (the DED), however, only list very general groups of expenses. In addition, these groups are only partially divided into specific categories of goods and services.
Request for preliminary rulings from the CJ
The Dutch Supreme Court rendered its decision on the DED on November 14, 2008. The Supreme Court held that, generally speaking, the rules on salary in kind contravened EU law. The Supreme Court was uncertain concerning one specific part of the case: the private use of a company car. It therefore submitted a request for a preliminary ruling on this to the CJ. In the intervening period, the Amsterdam Court of Appeals, following the Supreme Court, submitted a request for preliminary rulings regarding the DED, on February 11, 2009. The CJ subsequently decided to handle both cases together.
AG’s opinion
The CJ’s AG delivered his opinion on both cases on Thursday, January 28, 2009. After analyzing the Second and later the Sixth Directives (precursors to the current VAT Directive) that were in force at the time, the ECJ’s AG Mengozzi was of the opinion that the system that was in force at the time of the Second and the Sixth Directives for the adjustment for private use, is still applicable, because there is, as yet, no harmonized system for the deduction of VAT for private use. One of the conditions to applying this system from the Sixth Directive is that that a method is devised for categories that are to be excluded. This has not yet occurred.
Mengozzi then examined the question of whether the elements named were sufficiently defined, as this is one of the conditions in applying the rules. He came to the conclusion that this is indeed the case for the following categories:
· offering the employer’s staff the opportunity for private travel;
· providing food and drink to the employer’s staff;
· providing housing to the employer’s staff
The condition is not met for the following categories:
· offering the employer’s staff leisure opportunities;
· offering promotional gifts or other presents to those in relation to whom, if they had been charged or were to be charged the relevant VAT, such VAT would be entirely or mainly non-deductible.
This means that the DED adjustment for company cars, among other items, is permissible in his opinion. We must now wait until the CJ delivers its final judgment.