Further to a recent case law (judgment of the Higher Administrative Court of Luxembourg (“Cour Administrative”) n°33654C of 25 September 2014) regarding the tax treatment of company car benefits in kind arising from the repurchase of a company car based on the provision of a leasing car agreement, the Luxembourg Tax Authorities issued a new tax circular (n°104/1 of 20 November 2014 hereafter “the Circular”), which replaces with immediate effect circular LITL n°104/1 of 18 February 2009 regarding the valuation of certain salaried benefits in kind.
The taxation as mentioned above arises further to an initial transfer of the repurchase right by the employer to the employee, and to the extent that the employee exercises his option to repurchase the company car which has been put at his disposal by the employer according to the terms and conditions of the related leasing agreement.
The decision of the Higher Administrative Court of Luxembourg
The Higher Administrative Court of Luxembourg in its judgment of 25 September 2014, has partially reversed the judgment n°31269 of the Lower Administrative Court of Luxembourg (“Tribunal Administratif”) of 14 October 2013, among three others. In fact, the Higher Administrative Court of Luxembourg mentioned that two benefits in kind have to be considered separately: on one hand, a benefit occurs when the company car is put at the employee’s disposal, and used by the employee for private purposes, on the other hand, a second benefit occurs upon repurchase of the company car at a preferred price by the employee. These benefits are seen as economically and legally distinct benefits, and lead to two different generating events.
However the Higher Administrative Court of Luxembourg raised the opinion that these two benefits are linked to the same object, i.e. the company car. Considering that the latter is first used and then repurchased by the employee, it arises from these two distinct events that the aggregated fiscal value of these two benefits should not exceed the global value of the company car (see hereafter “global purchase price”) after considering possible employee’s contributions within the tax limits applicable.
What is new about that Circular?
Following the Higher Administrative Court of Luxembourg judgment, the Luxembourg Tax Authorities have issued a new Circular, which provides a valuation method with a possible cap applicable on the fiscal value of the salaried benefit in kind arising from the repurchase of the company car at a preferred price by the employee.
However, the above does not change anything to the main current practice: the Luxembourg Tax Authorities have not amended the alternative, and most frequently used, lump-sum valuation method of the salaried benefit in kind arising from the put at disposal of a company car, which can be used by the employee for private purposes. The related benefit can still be valued on a monthly basis at 1.5% of the global purchase price of the car (brand new, incl. options and VAT, and after deduction of potential discounts granted to the buyer). The Luxembourg Tax Authorities have also clarified in this Circular its depreciation table providing valuation rates applicable to the company car at repurchase by the employee. Previously, this table provided valuation rates for the repurchased car up to the 60th month of the car with likely uncertain interpretations.
The Luxembourg Tax Authorities have now extended that table up to 90 months according to which the value of the repurchased company car can be estimated to 0% of the purchase price as agreed within the leasing car agreement. The Luxembourg Tax Authorities have also pointed out in the Circular that, in case of disagreement on the above mentioned valuation method, the employer may request an expertise of a professional of the automobile sector to evidence a market value for the car, which can be different from the above.
KPMG remains at your disposal in case of any questions you may have in respect of this Circular.
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