In proceedings conducted by KPMG Meijburg & Co the Haarlem District Court, in its decision of June 1, 2011, rendered that the annual VAT adjustment for the private use of a company car by employees can be limited to the far lower adjustment for environmentally friendly cars. According to the court, the Dutch Revenue's distinction in its VAT policy between environmentally friendly and other cars is in contravention of the applicable legislation.
No such distinction exists in either the European VAT Directive or Dutch VAT legislation. From a statutory point of view, only the amount of the VAT on car-related expenses and the volume of private use are decisive. Distinctions in technical specifications, such as a car's fuel consumption, are not relevant. Entrepreneurs may therefore also apply the VAT adjustment for environmentally friendly cars to ordinary cars, invoking the equality principle.
This decision has major consequences for the VAT adjustment. In 2008, the year covered by the proceedings, and 2009, the adjustment for ordinary cars was 12% of 25% of the catalog price. For specific environmentally friendly cars, however, the adjustment was 12% of 14% of the catalog price, a difference of 44%. Furthermore, an adjustment of 0% was introduced for electric cars as per January 1, 2010. Application of the court's decision to ordinary cars would result in the VAT adjustment for ordinary cars no longer applying as of that year. Given the number of company cars cars that is partly used for private purposes (720,000 in 2010), that would mean an annual loss of hundreds of millions of euros for the government. Please note that this regards only the annual VAT adjustment. The proceedings will therefore not affect the addition for payroll tax purposes.
Partly due to these potentially major consequences, we expect the Dutch Revenue to lodge an appeal against the court's decision.