Providing a Company Car to Employees: New Options

If a company provides its employees with a company car, the vehicle is considered to be used for personal purposes within the scope of the employment relationship. This has several implications. The income tax treatment of providing a company vehicle to employees is governed by law. The tax authorities have now compiled the most important current rules for practical application. Your tax advisor in Düsseldorf and Oberhausen has summarized the major changes for you.

If a company provides its employees with a company car, this constitutes a monetary benefit for the employees. In this case, it is considered a non-cash benefit. This must be taxed as wages. The benefit accrues to an employee because they make their labor available to their employer. The amount of the non-cash benefit is regulated by law.

The regulation stipulates that the employee’s private use must be treated as wages. Consequently, the transaction is considered entirely business-related for the company. Ultimately, this means that, from the company’s perspective, there is always 100% business use.

Trips for personal use

Trips for private use are recorded differently:

• General private use: There are two options here. Either a flat rate is calculated using the 1% method. In this case, 1% of the gross list price of the company car plus optional equipment is treated as monthly wages. Alternatively, the actual costs attributable to private trips must be reported for tax purposes. In this case, care must be taken to ensure that employees maintain a proper logbook showing the breakdown of the trips.
• Commute between home and the primary workplace: These are to be treated as wages either as a flat rate or based on actual costs
• Trips home to visit family: These are only included as part of a dual-household arrangement if the employee makes more than one trip per week. This means that only trips exceeding one trip per week must be included in the employee’s wages.

Taxation of vehicle use

For trips between home and the primary workplace, an amount of 0.03% of the gross list price per kilometer of the distance between home and the primary workplace is taxable on a calendar-month basis.

It is important to note that travel between home and the primary workplace is subject to taxation at 0.03% even in cases of working from home, part-time arrangements, business trips, short-time work, or stays abroad. This is the current regulation, as the monetary benefit arises solely from the possibility of use and not only from actual use.

Switch from the 0.03% rule to individual trip valuation

Here, a change is being introduced. Specifically, the option arises to switch retroactively from the 0.03% rule to per-trip valuation. For all company-provided vehicles, it was previously established that the application of the 0.03% rule or the per-trip valuation had to be uniformly determined by the employer for each calendar year. Until now, switching between the methods during the calendar year was not permitted.

Under the new interpretation, however, a retroactive change of method is permitted during the current calendar year, but only for the entire calendar year and prior to the submission or issuance of the income tax statement under Section 41c of the German Income Tax Act (EStG). As a result, this adjustment can now also be applied in the areas of social security and value-added tax.

The 1% Rule and the Logbook

For private use, either the 1% rule or the logbook option applies. Here, too, previous interpretation allowed only an intra-year switch between the two rules for the same vehicle. Going forward, the Federal Ministry of Finance (BMF) permits a retroactive change to the payroll tax deduction for the entire calendar year.

Keeping logbooks properly is a major challenge for employees. The tax office is very strict during audits. Deficiencies result in the logbook not being accepted. In this case, private vehicle use is taxed by the tax office according to the 1% rule. Electronic logbooks are a good alternative. These are recognized by the tax authorities if they contain the same data as a manually kept logbook.

Co-payments and tax treatment

Generally, employees pay a usage fee to their employers for the non-work-related use of a company vehicle, particularly for private trips, commutes between home and the primary workplace, and trips to the family home. From a tax perspective, this fee reduces the value of use. This is also the case if the employee pays the usage fee to a third party at the employer’s instruction.

From a tax perspective, given the usage fee paid, there was no enrichment of the employee, which must be taken into account for tax purposes.

Here, too, the Federal Fiscal Court (BFH) has ruled differently than before. Now, time-based (one-time) payments made by the employee for the non-work-related use of a company vehicle must be evenly distributed over the period for which they are made when calculating the monetary benefit and taken into account as a reduction in the benefit. The BFH’s case law has been adopted by the tax authorities.

Tax Advisors in Düsseldorf and Oberhausen

We are your tax advisors in Düsseldorf and Oberhausen. Please contact us if you have any questions regarding tax or legal matters. Our experts are always happy to assist you and your company.