Everything as usual with company car taxation? - BFH ruling V R 25/21 of 30 June 2022

Upon referral by the Saarland Fiscal Court, the ECJ (ruling of 20 January 2021, C-288/19) had (apparently?) rejected the VAT taxation scheme in case the employee does not have to pay for the private use. The tax court then ruled accordingly. In the appeal proceedings, however, the BFH (Federal Court of Finance) came to the conclusion in its ruling published on 29 September 2022: The legal conclusions drawn by the tax court cannot be inferred from the ECJ ruling because this was not even asked for.

Previous method of company car VAT taxation in Germany

If an employee is also allowed to use a company car privately without having to pay for it, the tax authorities have so far assumed that there is no free transfer of value, but rather a barter transaction: The employee performs his work partly for the cash salary and partly for the use of the car. The remuneration for the use of the car by the employer is therefore the employee's proportionate work performance (cf. section 15.23, paragraph 8 et seq. of the administrative guidelines to the German VAT Code).

The place of supply is determined according to § 3a para. 3 no. 2 p. 3 German VAT Code (corresponds to Article 56 para. 2 sentence 1 of the EU VAT Directive) for the long-term rental of means of transport to non-taxable persons - i.e. according to the employee's place of residence. For reasons of simplification, the assessment basis for the car rental is usually determined using the 1% rule. The employer is allowed to deduct input tax from the costs of the car because the car is used for business purposes (also by providing it for private use).

The ECJ decision C-288/19 of 20 January 2021

The case concerned an employee resident in Germany who was given a company car by his Luxembourg employer, also for private use. It had originally been agreed that the employee would have to make a personal contribution of € 2,640. However, due to the termination of the employment relationship, this did not happen.

The Saarland Fiscal Court (FG des Saarlandes) had referred the question to the ECJ whether there was a rental of a means of transport to non-taxable persons if the employee "...does not make any remuneration for it which does not consist in his (partial) work performance, i.e. does not make any payment, does not use any part of his cash remuneration for it and also does not choose between different benefits offered by the taxable person in accordance with an agreement between the parties according to which the entitlement to use the company vehicle is linked to the waiver of other benefits. "

The ECJ replied: No, if this turnover does not constitute a service for consideration. Further details can be found in our web article.

The decision of the Saarland Fiscal Court of 29 July 2021, 1-K-1034/21

From the ECJ's answer, the Saarland Fiscal Court concluded that in the case in question there was no barter-like turnover in which part of the employee's work performance was to be regarded as remuneration for the private use of the company car. However, it allowed an appeal to the BFH because of the fundamental importance of the legal question.

In professional circles, the ECJ decision and the follow-up decision of the BFH, in particular for foreign employers with employees in Germany, were seen as offering the possibility of avoiding taxation of the private use of cars in Germany altogether. However, some also warned against an over-interpretation of the ECJ ruling.

The BFH decision of 30 June 2022, V R 25/21

The BFH is of the opinion that the Saarland Fiscal Court did not address in its question for a preliminary ruling whether the employee's pro rata work performance in the context of a barter-like transaction could constitute remuneration for the use of the car. Therefore, the ECJ had not dealt with this question, which had not been raised, and the ECJ's ruling accordingly did not say anything about this question. It was clear from the previous case law of the ECJ that remuneration could also consist of a payment in kind. The conclusion drawn in some literature from the ECJ ruling that a barter-like transaction is excluded if only the work performance can be considered as remuneration for the provision of the car is therefore incorrect.

The previous case law of the European Court of Justice shows that there is always a direct connection between the employee's work and the provision of a car if the provision of use is agreed individually within the framework of an employment contract. This was the case in the dispute. Moreover, taking into account the economic reality, it had to be assumed that the employee's decision to enter into the employment relationship under the conditions offered depended on the possibility to use the car.

As a result, the BFH confirms the previous practice of company car taxation as described at the beginning.


Whether the BFH's accusation is correct that the Saarland Fiscal Court had already wrongly posed the question for referral and only therefore received an insufficient answer from the ECJ may be left open. After all, the tax court stated that the employee "...does not pay remuneration for this that does not consist of his (partial) work performance...". Here, one could have expected the ECJ to address the question of barter-like turnover.

The BFH's decision is nevertheless convincing in its outcome; this applies in particular to the reference to economic reality. For what reason should an employer provide a car for private use if not because of the employee's work performance? It is absurd that the work performance is fully compensated with the cash salary and that the car is granted additionally without consideration. Accordingly, the tax authorities will maintain the taxation of company cars according to the familiar system.