Passenger cars have historically been excluded from VAT deduction in France. A ruling published on 30 April 2025 opens a breach in that rule, and a wide one. Everything turns on a single point: whether there is consideration.
What the Court held
The judgment of the Court of Justice of the European Union of 20 January 2021, case C-288/19, draws a line between two situations.
A car made available to an employee free of charge, without real consideration, is not a taxable supply. The fact that a benefit in kind arises does not change that.
But as soon as explicit consideration exists, a direct payment or a salary reduction stipulated in the contract, making the car available becomes a letting. It is then subject to VAT, located in the employee’s state of residence.
What the authorities draw from it
Ruling ACTU-2024-00164, published on 30 April 2025, confirms that the employer owes the VAT where the car is provided for consideration.
It goes further. VAT on the purchase, lease, maintenance and repair of the car becomes fully deductible, provided the car is allocated from the outset to a letting activity towards an employee.
| Car made available | VAT owed by the employer | Right to deduct |
|---|---|---|
| without real consideration | no | historic exclusion |
| with explicit consideration | yes, in the employee’s state of residence | full deduction on purchase, lease, maintenance and repair |
What this changes in practice
A business that provides cars for consideration can recover the VAT on them. And where deductions have been omitted, a correction for past periods comes into range.
The starting point is not the car but the contract. The question to settle is whether identifiable consideration exists and whether it is in writing. Then comes the fleet policy, and then the knock-on effects: employment law, payroll, direct tax. None of the three can be sorted out afterwards. See tax advisory
Valuing the benefit in kind follows different rules, and those changed on 1 February 2025. The valuation rates
Sources: CJEU, 20 January 2021, case C-288/19; ruling ACTU-2024-00164 of 30 April 2025.