The Central Economic Administrative Court (TEAC), in its resolution of February 22, 2022, makes an important change of criteria in relation to the treatment to be given, for VAT purposes, in the supply of vehicles that a company makes in favor of its employees.
Traditionally, the Directorate General of Taxes and the Tax Inspectorate generally considered that when an employee's remuneration package included a vehicle, the transaction was subject to VAT.
Thus, for personal income tax purposes, payments in kind have been assimilated to transactions subject to VAT, and therefore the company must charge the corresponding VAT to the employee, without the need to prove the existence of a link between the good delivered or service rendered and the consideration received.
On the basis of several rulings of the Court of Justice of the European Union (CJEU), the TEAC has now changed the previous criterion, on the grounds that it is not in line with EU case law.
Thus, for a transaction to be subject to VAT, it must be considered that there must be a direct link between the supply of the good or the provision of the service and the consideration received. Therefore, in accordance with the general criteria indicated by the CJEU, it is necessary to determine whether the supply of the good or the provision of the service is for consideration or free of charge.
According to the criteria of the CJEU now adopted by the TEAC, those cases in which there is a direct relationship between the delivery of the good or service rendered by the employer and the consideration received in exchange, provided that such transaction is economically quantifiable, are transactions for consideration, and therefore VAT must be charged.
This occurs for example when the employer delivers the vehicle to the employee and (i) the employee pays a rent to the employer, or (ii) waives a part of his monetary salary, or (iii) it is expressly foreseen which part of the work (economically valued) is a consideration for such vehicle. In all other cases, there should be no VAT charged by the employer.
Therefore, and in accordance with the above, it cannot be automatically concluded that when there is a remuneration in kind for personal income tax purposes, there is an onerous consideration for VAT purposes. In these cases an individualized analysis of each case must be made. This same conclusion has been reached by the Audiencia Nacional in a very recent ruling (December 2021).
Therefore, we recommend that the consideration for VAT purposes of remuneration in kind be reviewed, in order to verify its compliance with the criteria established by the TEAC on the basis of Community jurisprudence.
