The Belgian obligation to register a leased car from Luxembourg has been found to be in violation of the EC-Treaty. Connie Smit of Loyens & Loeff gives the consequences of this ruling for the Netherlands.

The case history:

A Belgian civil engineer, who lives in Belgium and works in Luxembourg, makes use of his company car for business as well as private purposes. His employer is established both in Belgium and in Luxembourg, the lease company is established in Luxembourg and the car has Luxembourg license plates.

In 1999, the police stop him for a routine check. Because he has been driving in a car on a public roadway, without having formally requested to have the car registered in its owner’s name in Belgium – he is considered to be in violation of Belgian law and is given a court summons. The employee also should not have been on the Belgian roads in a car that carried Luxembourg license plates.

However, he could not have registered the car, as it was not his property. Nor could the Luxembourg lease company, as it wasn’t (also) established in Belgium and did not have a Belgian VAT-number.

The employee felt that the obligation to register the car was in violation of the free movement of employees and appealed the case. The Belgian Court decided this was a good time to submit a number of prejudicial questions before the EC Court of Justice.

The EC Court of Justice decided that the obligatory registration of the car was in violation of the free movement of employees. Article 39 of the EC-Treaty rules out any regulations on obligatory registration that determine that an employee who lives in a member state may not – in this same member state – make use of a vehicle that is registered in a bordering member state - belonging to a lease company that is established in this second state and that has been made available to the employee by his employer, who is also established in this second state.

Source: Court of Justice, October 2, 2003, C-232/01

The consequences of the ruling for other EU countries

The Belgian government had already changed the rules in July 2001, so that the situation as described above would no longer arise.

The consequences of this ruling would appear to be limited for the Netherlands. Also in the Netherlands, cars must be registered, allowing the levying of BPM (tax on personal vehicles and motorcycles).

Residents of the Netherlands (or an entity established in the Netherlands) must also pay BPM for making use of public roads if a non registered private car has been put at their disposal.

The BPM-tax has been a hot issue in the Netherlands for some time because it is relatively high compared to the tax in the surrounding countries: 45.2 percent minus a small fixed amount for cars and 10.2 percent or 20.7 percent minus a small fixed amount for motorcycles. The tax is levied over the sales price that the importer or manufacturer of the car feels should be quoted to retailers as the final price to be paid by the actual buyer of the car (list price). This price is the net list price, excluding VAT (19 percent VAT is due over the purchase price, excluding BPM).

BPM is not due on cars that are put at the disposal of employees by their foreign employers to be used for business and private purposes and which do not carry Dutch license plates.

This exemption is allowed, upon request, if:

• The car is primarily to be used by the employee to carry out work outside the Netherlands (in other words for business purposes, excluding the commuter);
• The employer has confirmed in writing that the vehicle may also be used for private purposes;
• The employee has no influence on the decision of the country in which the vehicle is registered.

November 2003

Connie Smit is a tax adviser for Loyens & Loeff in the Netherlands.