Recovery of French VAT on company vehicles: it is now possible under condition

Many companies provide their employees with so-called “company” vehicles, usable both for professional and private trips.

Until recently, this practice was widely considered to be outside the scope of VAT, as no direct compensation was required from the employee.

This led companies to apply the rule of principle according to which VAT is not deductible on passenger vehicles (except for derogation). Rule that always remains applicable.

However, the details of the administration will have a significant impact for companies that make vehicles available to their employees both for professional and private needs in exchange for compensation.

In this scenario, which is very widespread within companies, VAT becomes deductible on the purchase price of the vehicle or lease, in return for which, the amount of the consideration identified at the employee level, becomes subject to VAT.

In some situations, this paradigm shift can benefit companies.

While the year 2025 was marked by the reform of benefits in kind (AEN) on vehicles, which significantly increased the cost of providing vehicles, this rescript could partially offset this additional cost by allowing the deduction of VAT on the purchase price of the vehicle.

This new publication requires companies to review in detail the management policy of their vehicle fleet in order to determine the impacts of these changes in terms of VAT, accounting but also remuneration and URSSAF for the past, present and future.

Here we offer you a first reading grid to understand this paradigm shift.

A position called into question by the tax authorities

In a Rescript published in BoFiP on 30 April 2025 (BOI-RES-TVA-000161), the French tax administration has profoundly changed its position, drawing on the consequences of European case law. She now specifies that the providing a vehicle to an employee is a transaction subject to VAT, as long as compensation is paid by the employee, in particular in the form of a payroll deduction.

This change in approach has two main consequences:

• The company is required to collect VAT on the compensation paid by the employee (payroll deduction, lump-sum reimbursement, etc.);
• In return, the company is entitled to deduct VAT borne on the expenses related to this provision, including the VAT charged the acquisition or rental of the vehicle concerned.

An opportunity for savings or fiscal risk

This development specifically concerns company vehicles for which a counterparty is identified, to be distinguished from service vehicles strictly used for professional use and which does not give rise to any compensation from the employee. The qualification of provision “for consideration” presupposes the existence of a advantage identified and valued for the employee, giving rise to a identifiable financial participation.

For businesses, this new interpretation opens up a VAT recovery opportunity on costs that have historically been excluded from the right to deduct (car purchase or lease), provided that formalize and document correctly employee participation.

Attention: for some operators and depending on the type of vehicle or their method of acquisition, it is possible that the company is in reality in a situation of fiscal risk. This is the case when the expenses would be less important than the valuation of the provision to employees.

I. The main contributions for executive vehicles

Taking consequences of the shutdown QM, case C-288/19, of January 20, 2021, the tax authorities indicate that the provision of a company vehicle to a staff member Constitutes a transaction falling within the scope of VAT, as soon as the operation is carried out For a fee.

As a reminder, theArticle 256 of the French tax code (FTC) provides that VAT is subject to VAT supplies of goods and services carried out for consideration by a taxable person acting as such.

In this context, the administration, taking note of the interpretation of the community judges, recognizes that the Provision of a vehicle is a service provided at a cost in the presence of a stipulated consideration.

Recognition of the provision of services for consideration presupposes, as recalled by the CJEU and the tax administration, the existence of a direct link between the service provided (the provision of the vehicle) and an identifiable consideration. This compensation can take various forms, ranging from much more than a simple cash payment by the employee.

For example, the following are considered to be stipulated counterparties:

• The deduction from the employee's gross or net salary : in this case, the employee renounces part of his monetary remuneration in exchange for the use of a vehicle. VAT is therefore applicable, as the service is provided at an additional cost.
• The point credit system that can be converted into remuneration : the employee has a budget consisting of a wage levy and/or points convertible into wages. When choosing a vehicle whose cost exceeds this budget, a additional withholding is applied. Conversely, unused credit can be converted to remuneration. This mechanism clearly reflects a renunciation of a pecuniary benefit, similar to a payment.
• The allocation of a budget by the employer, convertible into remuneration : the employee who chooses to benefit from a vehicle instead of a salary supplement also provides an explicit quid pro quo.

These situations all reflect the existence of a legal relationship with reciprocal benefits, in the sense of VAT directive. They should therefore be treated as services for a fee, subject to VAT.

A shared approach at European level

This analysis framework is also adopted by the Belgian administration, which identifies as constitutive of the provision of services for consideration:

• The direct payment by the employee;
• La withholding from remuneration ;
• THERegister for the debit of the current account of a manager or director;
• The choice between different benefits, including the use of the vehicle, involving a waiver of other rights or benefits.

Consequence in practice

VAT collection by the employer

An employer who provides a vehicle in exchange for rent or an equivalent must declare the VAT in respect of this provision.

In this context, he must pay VAT alternately:

• or through his CA3 if he is established in France;
• or through the OSS if established abroad.

Therefore, HR departments and accounting departments must share the amounts in order to identify the VAT base. For this, operators can share the data declared through the Nominative Social Declaration (DSN).

The tax base is in fact constituted by the amount of rent required or the portion of the salary for which the employee renounced. The administration specifies that it is therefore not necessary, in order to determine the taxable base for VAT, to apply any reduction in proportion to the duration or volume of effective private use. The VAT tax base corresponds to the totality of the consideration received, even if the employee uses the vehicle mainly for professional purposes.

This approach simplifies administrative management for the company and secures tax treatment.

The case of cross-border provision

When the employer company and its employees are established in two separate Member States of the European Union, the provision of a company vehicle for consideration — when it is characterized as such — can be considered, for VAT purposes, as a long-term rental of a means of transport returned to a non-taxable person.

This type of transaction falls under the territoriality rule provided for in article 56 of directive 2006/112/EC, transposed into French law in article 259 A of the FTC.

In practice, the benefit is taxable in the State of residence of the employee.

This means that a French company making a vehicle available to an employee residing in another Member State must register with the OSS to collect the VAT of the Member State concerned.

This situation therefore calls for increased vigilance in cross-border groups or French companies with staff posted or based abroad.

The VAT deduction: the compensation for collection

Taking into account the collection of VAT, the employer is assimilated to a vehicle rental company and can therefore deduct the VAT incurred on the acquisition or rental of the vehicle.

In this context, the Company can therefore claim the VAT incurred.

This covers not only costs directly related to vehicles but also costs, fuel but also maintenance and repair.

So the stakes can be high.

The administration specifies that the VAT in connection with the vehicle “is fully deductible, without there being any need to apply any reduction according to the duration of private use”. In this context, there is no limitation given to the private or professional use of the vehicle.

A rescript applicable from now on

The French tax authorities publish this rescript without indicating a specific date of application: in fact, this rescript is in reality only an interpretation of the legislation.

In this context, the rescript is applicable to previous periods:

• the company can therefore be subject to a recovery over the last three years;
• the company can also claim VAT on the basis of common law rules (for the current year and the last two years).

II. What is the opportunity for businesses?

Depending on the situations and vehicle financing arrangements, the rescript of April 30, 2025 may prove to be particularly favorable for businesses.

Indeed, it allows the companies concerned to deduct VAT on the purchase or rental price of vehicles, without applying an allowance linked to the private use of the employee.
In other words, in some cases, the company now bears the cost of acquisition or leasing for their amount excluding tax : ️ the windfall effect is immediate.

But heed : any entitlement to deduct implies in return, an obligation to collect VAT. on the amount paid (or deemed to have been paid) by the employee.

The rescript only applies when a private use of the vehicle is granted to the employee in exchange for an identifiable consideration. It is therefore essential:

• to analyze employment contracts and internal policies (Car Policies) and pay slips;
• to identify the cases in which the rescript is applicable, and to draw all the consequences in terms of VAT collected.

Companies therefore face a situation where they are alternately:

• or in a situation where they can claim more VAT than that collected as a result of the provision;
• or in a situation where they finally have to remit VAT to the State.

In other words, each operator has an interest in setting up a study: either to put an end to a latent tax risk or to claim possible VAT that could expire in the coming months.

This text Do not create a new rule, but come confirm an interpretation based on European case law.

In short: we must act for the past, the present and the future.

One case-by-case analysis is required to assess opportunities and risks:

• Your company Does it really have an advantage with the publication of this rescript?
• One restructuring your fleet of vehicles would it be appropriate to optimize tax treatment?
• how secure your practices in case of control?

While the recent reform of benefits in kind (AEN), fromOrder of 25 February 2025, increased the cost of providing vehicles for businesses, This rescript can be a lever for tax compensation.

How to be accompanied?

Cyplom offers operators to audit their situation in order to determine if they face a risk or if savings can be identified.

In addition, if necessary, we propose the implementation of a structure to optimize the structuring of your fleet for the future.

III. What are the implications for vehicles made available without compensation?

When the permanent provision of a vehicle to an employee for totally or partially private use occurs without any deduction from salary, or mobilization of a point credit or a convertible budget envelope, the operation does not constitute a provision of services for consideration within the meaning of article 256 of the FTC.

However, this provision may be assimilated to the provision of services for a fee on the basis of 2 of II of article 257 of the FTC, when all or part of the VAT charged on the purchase of the vehicle has been deducted. This rule is intended to neutralize a private benefit granted free of charge on a property that was eligible for deduction.

On the other hand, this assimilation does not apply When the VAT relating to the vehicle was not deductible due to theexclusion provided for in 6° of 2 of IV of Article 206 of Annex II to the FTC, in particular for vehicles designed for the transport of persons (see BOI-TVA-DED-30-30-20).

Examples of situations concerned:

• One car rental company who makes one of its immobilized vehicles available free of charge for the personal use of an employee;
• A company that provides without compensation a category M vehicle of the “DERIVATIVE VP” type which gave rise to the right to deduct.

In these cases, the provision is territorialized in the employer's State according to the common law provided for in article 45 of Directive 2006/112/EC, as recalled by the CJEU in judgment C-288/19 of 20 January 2021.

IV. What is the change for the vehicles assigned to the company?

The absence of change

In this context, the rules relating to passenger vehicles operated by the company (and not made available for private use by employees) have not changed: these vehicles are subject to an exclusion from the right to deduct.

The rule is simple and provides that VAT on passenger vehicles is not deductible. By passenger vehicle, we mean “any vehicle intended to transport people” (car, motorcycle, etc.).

VAT is deductible on vehicles that are classified as “very special vehicles” by the Highway Code.

The outlines of this category of vehicle have been the subject of multiple clarifications in order to determine the criteria that make it possible to make VAT deductible on these vehicles.

Among the cases of Allowable deduction, we find in particular:

• Commercial vehicles : VAT is deductible on vehicles such as vans or vans designed for the transport of goods, including when equipped with a Extensive cabin including, where appropriate, A bench
  (BOI-TVA-DED-30-30-20-20170201 §20) ;
• Vehicles assigned exclusively to certain specific professional uses, namely:
  
  • driving education (driving schools);
  • the operation of ski lifts and ski areas, for off-road vehicles, under the conditions established by decree;
  • public passenger transport, for vehicles purchased by transport companies and used exclusively for this use;
  • The transport of equines, for vehicles specially equipped for this purpose.

For more details, we refer to our dedicated article.