Company Cars - the latest international Ecovis research study by 17 Ecovis partners from Europe and Asia

1. International Tax Policy Barometer
Company Cars: Sympathy for the private joyride
Berlin, 15 December 2010 – Company cars are a lot more than simply a set of wheels for
business use, and in many countries they are no longer just considered perks for leading
executives. Instead, many employers now allow the private use of company cars as a
means to increase staff motivation. “This can lead to tax conflicts, as is always the case
when considering tax deductible expenditure for the employer and the taxable benefit for
the employee”, says Dr. Ferdinand Rüchardt, Member of the Board at Ecovis. These
conflicts do not only arise in Germany, as is shown by the latest international Ecovis
research study by 17 Ecovis partners from Europe and Asia. Rarely has the Ecovis Tax
Policy Barometer produced results as conclusive as this one: “Private use of company
cars is always taxable, no matter who’s in the driver’s seat – an employee, a freelancer or
the entrepreneur himself”, says Professor Dr. Peter Lüdemann, Member of the Board at
Ecovis and a recognized expert on international tax law. The survey found only one
exception: “In Russia company owners are allowed to undertake untaxed private rides in
cars registered to their companies”, Lüdemann states. As always, details may differ
from country to country, “especially when determining the taxable private share”, he
maintains.
As a general rule in every country covered by the new study, expenses related to company car
and incurred for business purposes can be set off against profits charged to tax. In Malta, this
only applies when the car is classified as „commercial‟. In Ireland, VAT on fuel is excluded. And
in the Netherlands, as in Germany and the UK, “traffic offenders driving company cars are not
allowed to claim the fines as tax deductible business expenses”, Ecovis partner Vanessa
Hadinegoro-Spaans points out.
Separating private from business use: How good are driver’s logs?
When separating company car costs from private and business induced costs owners and
employees must follow similar rules in two-thirds (12) of the 17 countries examined.
In ten countries, expenses (including depreciations) are divided up by kilometers driven for
business and for private use. In six of these countries – including the Netherlands, Germany
and Hungary – a driver‟s log is required as proof. In Germany, taxpayers can opt instead for a
flat rate. This means they must deduct one percent of the list price of the new car (including
VAT) from all expenditures for every month the car is used for private purposes.
In Spain the flat rate rule is fairly straightforward: Every year 20 percent of the acquisition costs
(including extra charges) can be deducted, for example 6,000 Euros on a car costing 30,000
Euros. The private share is calculated by determining the percentage of the employee‟s annual
agreed working hours in a calendar year (which has 8,760 hours). This percentage is then
deducted from 100 percent. Say the employee works 1,752 hours per year; therefore the
business share accounts for 20 percent, so the taxable private share comes to 80 percent. In

2. our example, the non-cash benefit for the year thus adds up to 4,800 Euros per year, or 400
Euros per month.
In Denmark the following rules apply: If the employee may use the car for private purposes he or she
will have to add to the personal income 25 percent of the price of the new car up to 300.000 Danish
Kroner (DKK), plus 20 percent of the amount exceeding DKK 300.000. For example, for the private
use of a company car that cost DKK 400.000 the employee has to pay tax on an extra income of DKK
95.000 each year. When three income years have passed the taxable benefit will be reduced to 75
percent of the amount calculated before. For used cars that are older than 36 months the calculation is
based on the price paid for the used car. “In any case it will make no difference whether the employee
will drive the car only one kilometer or around the world for private purposes”, says Ecovis partner Kurt
Bülow.
The company owning the car can deduct all costs – including depreciation at a rate of 25 percent in
the first year and then declining.
In Ireland a privately used company car is considered to be a non-cash benefit for company
owners and employees alike and must be taxed according to a predetermined scale. “Costs for
proven business usage are then deducted“, explains Andrew Gelling, an Ecovis partner in
Dublin.
Turkey similarly considers the owner‟s private share to be a benefit provided to him by the
company and therefore subject to the transfer price rule. The company must bill him
appropriately. The same goes for employees who are required to pay taxes for the non-cash
benefit of driving a company car during their off-time.
Some countries apply different splitting rules and options for company owners and employees:
 In Austria, company owners are required to keep a driver‟s log, while employees can
choose to apply a flat rate to determine their private (and therefore taxable) share of
usage.
 In Slovenia, both entrepreneurs and free-lancers must keep a driver‟s log. In case of a
tax audit, undocumented business use of a company car is considered to be private.
Employees, however, may determine their private share of company car usage
according to the following formula: For up to 500 kilometers per month of private use,
0.75 percent of the tax value of the car may be deducted; above that 1.5 percent are
deductible; if the employee is not required to pay for gas himself, the tax amount thus
calculated is automatically increased by 25 percent. In either case, the employee must
keep a driver‟s log.
 Tax authorities in Luxembourg will “usually accept a sensible estimate in lieu of a
driver‟s log”, says Phillip van der Westhuizen, a local Ecovis partner. Employees can
choose a flat rate model similar to Germany‟s instead of keeping a driver‟s log,
regardless of whether the employer has purchased, leased or rented the car. However,
the monthly deduction of 1.5 percent of the car‟s sticker price is much higher than in
Germany. “Most employees go for this option”, Westhuizen maintains.
 In the United Kingdom, only self employed persons who use their own cars for business
purposes have to keep a log and then only the business proportion of the cost will be
deductible for tax purposes. No log is required for cars owned by the company as all
relevant expenditure is tax deductible by the employer and the employee‟s taxable
benefit of private use is determined by a scale. However, tax depreciation is limited to

3. 10 percent per annum for cars emitting 160 grams or more of CO2 per kilometer, and
20 percent for cleaner cars. For cars that are hired 15 percent of the hire cost is not
allowed as a tax expense. Employees are taxed by reference of a scale regardless of
how many private miles they drive. Private use includes driving between home and
work. The scale applies a percent charge to the original list price of the car when new,
and this percentage increases the more grams of CO2 per kilometer the car emits. An
additional scale charge applies if fuel is provided by the company for private use. The
scale charge for private use fuel can be avoided if the employee reimburses the
employer for that. “As a consequence employees are encouraged to drive “green” cars
as the tax cost is far lower than on a car of the same price but more polluting”, explains
Christopher Jenkins, Ecovis partner in London.
So who pays the price?
The question remains - who actually pays the applicable taxes for the private use of a company car?
The answer is hardly surprising: In most countries (12 out of 17), the employee himself. This is true
even if the employer calculates the amount to be paid, deducts it from the employee‟s paycheck and
remits it to the tax authorities, as is the case for instance in Ireland, Slovenia, and Turkey. Only two
countries (Macedonia and Hungary) require the company itself to pay. In China and Austria, both sides
share the tax burden. Holland has special requirements.
What about commuters?
Travel by company car between the home and the workplace can be treated very differently
depending on country. In nine cases (including China, Luxembourg, Germany and the United
Kingdom) this is considered part of the employee‟s private life and is therefore taxable as a non-cash
benefit. In seven countries, not all included in the first group, the same goes for the entrepreneur. In
Germany, for instance, the benefit is calculated based on the actual distance covered or according to
a flat rate of 0.03 Euro Cents of the domestic list price of the car (including VAT) per kilometer driven
per month.
In the Netherlands, on the other hand, commuting to and from the workplace is untaxed for both
employer and employee. A similar rule applies in Slovenia, except that the amount is capped at the
price of a commute by public transport. In Luxembourg, company owners can deduct a flat rate per
kilometer driven in a company car between his home and the workplace.
Pre-tax deductions: anything goes!
As far as deducting input tax is concerned, the range of possibilities is wide and varied. Only four
countries – Japan, Spain, Germany and the Netherlands – allow entrepreneurs to charge the VAT
paid on a car purchased by his firm against the company‟s own tax bill for trade receivables.
In six out of 17 countries – for instance in China, Russia and the UK – this is only possible if a
limousine is used exclusively for business purposes. In five other countries such practices are
prohibited, for instance in Ireland and Hungary. There, input tax charges are only possible for
commercial vehicles, “unless the company is in the car rental business or operates a driving school”,
says Christoph Geymayer, an Ecovis partner based in Ljubliana, the capital of Slovenia. In Denmark
VAT is not refunded for company cars which are also used for private purposes.
In Austria, pre-tax deductions are allowed for certain types of cars. Spain allows companies to deduct
input tax from the sticker price only if the vehicle is also used privately. Luxembourg has chosen a
differentiated model, whereby entrepreneurs may deduct an amount corresponding to the car‟s private
use, while employees may enjoy a full deduction if they have opted for a flat tax rate since this takes
into account the full price of the car including VAT.

4. A similar plethora of systems is used when it comes to pre-tax deductions (VAT refunds) on the
operating costs of company-owned vehicle:
 No restrictions apply in Spain and Germany.
 In the United Kingdom, there are certain restrictions as the rate of tax depreciation on a
vehicle that has been purchased and the deduction for leasing costs on a vehicle which has
been leased depend on the CO2 emissions. VAT included in these costs can only be
deducted correspondingly.
 Only two countries (Hungary and Slovenia) do not allow any deductions at all.
 Four countries prohibit deductions if the car is also used privately; companies in Spain may
only deduct 50 percent in these cases.
 Three countries (Denmark, Japan and the Netherlands) follow a policy of allowing deductions
only for proven business use of the car.
 Austria and Luxembourg employ the same rules as for pre-tax deductions when purchasing a
company car.
Ireland, finally, has a rather curious rule: Here, VAT paid on fuel is deductible – but only if the car is a
diesel.
About Ecovis
Ecovis is a leading global consulting organisation with its origins in Continental Europe. Its members‟ have over 3,300
staff operating in over 30 countries. Its consulting focus and core competencies lie in the areas of tax consultation,
auditing, legal advice, accounting and management consulting services. The particular strength of Ecovis is the
combination of personal advice at a local level with the general expertise of an international and interdisciplinary
network of professionals. Every Ecovis office can rely on qualified specialists in its back offices as well as on the
specific industrial or national know-how of all the Ecovis experts worldwide. This diversified expertise provides clients
with effective support, especially in the fields of international transactions and investments - from preparation in the
client's native country to support in the target country. In its consulting work Ecovis concentrates mainly on mid-sized
firms. Both nationally and internationally, its one-stop-shop concept ensures all-round support in legal, fiscal,
managerial and administrative issues. The name Ecovis, a combination of the terms economy and vision, expresses
both its international character and its focus on the future and growth.
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