TAXATION: BRITISH MOTOR FUEL DEDUCTIBILITY ORDER INCOMPATIBLE WITH 6TH VAT DIRECTIVE.

• Position: Value Added Tax - Brief Article

The British order permitting employers to deduct VAT on sums reimbursed to employees for the vehicle fuel they buy is incompatible with EU law, according to a ruling passed down by the EU Court of Justice on March 10 (case C-33/03). The Court argues that the British order does not ensure that the VAT deducted relates exclusively to fuel used for the purposes of the employer's taxable transactions. There is no proof that the fuel is not used for the employer's private needs.

The decision stems from infringement proceedings brought by the European Commission against the United Kingdom for non-compliance with the sixth VAT directive (77/388/EEC). The British order of 1991 provides that road fuel bought by employees is treated as supplied to the employer when the employer reimburses the employee. Reimbursement may be made either by means of a mileage allowance or...