On Nov. 17, EC published rules on VAT derogation for passenger cars.
EC published Council Dec 2021/1998 authorizing Estonia to introduce a special measure derogating from point (a) of art 26(1) and art 168 of VAT directive for cars.
Context
Decision 2014/797 authorized Estonia to restrict to 50% right to deduct VAT on purchase, leasing, intra-EU acquisition and importation of certain passenger cars.
Also to relieve the taxable person from accounting for VAT on the non-business use of vehicles covered by the restriction until Dec. 31, 2017.
Dec 2017/1854 extended the validity of decision 2014/797 until Dec. 31, 2020.
By letter registered with EC in Feb. 2021 Estonia requested authorization to continue to apply special measure derogating from VAT dir to restrict the right of VAT deduction.
By letter of Mar. 2021, EC notified EST it had all information needed to assess request.
Limitation of right to deduct under requested authorization should apply to VAT paid on purchase, leasing, intra-EU acquisition and importation of specific categories of passenger cars and on expenditure related thereto, including the purchase of fuel.
Only to passenger cars with maximum authorized weight not exceeding 3 500 kgs.
Not having over 8 seats in addition to driver since any non-business use of passenger cars exceeding 3 500 kgs or having more than 8 seats in addition to driver’s seat is negligible due to nature of those passenger cars or business type they are used for.
Detailed list of specific passenger cars excluded from that authorization should also be provided, based on their particular use.
The special measure will have a negligible effect on overall amount of tax revenue collected at final consumption stage, no adverse impact on EU own resources re VAT.
Decision
By way of derogation from arts 168, 168a VAT dir Estonia authorized to limit to 50 % right to deduct VAT on expenditure on passenger cars not wholly used for business.
Where expenditure covers purchase, leasing, intra-EU acquisition or importation of passenger cars not wholly used for business purposes.
Also on expenditure re maintenance, repair of such cars and purchase of fuel for them.
By way of derogation from art 26(1)(a), Estonia shall not treat as supplies of services for consideration use for non-business purposes of a passenger car included in assets of taxable person’s business, where car subject to limitation authorized under art 1.
Any request for extension of authorization must be submitted to EC by Mar. 31, 2024.
Accompanied by a report which includes a review of the percentage set out in article 1.
Effectiveness
Decision shall expire on Dec. 31, 2024 unless a new extension is granted.
(Please note this content is now deemed out of scope and will not be further updated unless there is a change in process or other noteworthy event in relation to the topic).
Regulators
EU CMSN
Entity Types
CNSM; Corp
Reference
OJ, L 401/3, 11/17/2021; Dec 2021/1998; Dec 2017/1854; Dec 2014/797; VAT Dir 2006/112
