V3.422 Supplies made to employees
Employees are frequently reimbursed by their employers when they purchase goods and services in the course of carrying out their duties, and the question arises whether their employers are entitled to input tax credit for the tax credit for the tax element of the amounts concerned.
The position under EU legislation
Directive 2006/112/EC art 1681 provides that a taxable person is entitled to deduct tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person if the goods or services are used for the purposes of his taxable transactions. This rule does not prevent deduction in respect of goods which, although sold to the taxable person in order to be used exclusively in his business, are physically delivered to his employees. Thus, a taxable person can deduct tax where, under an agreement between himself, one of his employees, and a supplier—
(1) the supplier delivers goods to the employee at the taxable person's expense;
(2) the employee uses them exclusively for the purposes of the taxable person's business; and
(3) the supplier issues an invoice to the taxable person showing the tax chargeable on the goods supplied2.
It appears that “employee”, in this context, should be interpreted to include staff provided by another
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