Company Cars

Tax Deductibility for Company Cars

Company Cars

At present, company cars account for approximately 60 percent of all registered vehicles. Company cars therefore comprise a large portion of the vehicle supply in Germany, because such a large portion of them are resold after only a few years, meaning the used car market dominates the German vehicle market as a whole.

As of now the tax code for business and private use of company cars has been neither ecologically nor socially beneficial: Those who benefit the most from the German tax on company cars are those who drive the farthest, those who are in control of the highest absolute and relative private portion of wealth, those who drive the newest and most expensive cars, those who display the most wasteful driving techniques, and those in the highest tax bracket in terms of income tax.  A new tax code is therefore a pressing issue and is supported by Federal Environment Minister Sigmar Gabriel, among others.

Our proposals

Our first proposal regards the business use of company cars.  In a merit-rating system, those company cars with the lowest fuel economy rating should be promoted.  Those who purchased a vehicle between 2009 and 2010 with a goal level of 130-140 g CO2/km will have all costs offset.  But those who purchased vehicles detrimental to the environment and climate will only be able to claim a portion of the purchase and fuel costs on their taxes.  Secondly, an analog gradation should be introduced for private use of company cars.  For vehicles within the goal range, nothing will change in the calculation of monetary benefits.  However, for those with higher emissions, a higher percentage of value must be collected (13 to 26 percent of the list price instead of the current 12 percent).  This approach has already been in place in the UK since 2002 and has met great success.  For both reform elements, the goal values should be reduced to 100 g CO2/km after 2001.

Projected Additional Receipts

With an average marginal tax rate of 40 percent, the current existing full marketability of company cars as business expenses leads to a tax deficit of about 9 billion Euros.  An amount of money of this magnitude essentially means the government is in the business of financing company cars.

Should the marketability of purchase and fuel costs as business expenses be capped, on average, at about 20 to 30 percent, the resulting tax revenue created would approximate 2 to 3 billion Euros.  Added to that is the increased revenue from taxation of monetary benefits of private usage of company cars, which could be estimated at approximately 0.5 to 1 billion Euros.  In total, the increased revenue would amount to approximately 2.5 to 4 billion Euros.

Social Outcomes

Above all, those who earn more and those who drive cars with high CO2 emissions would be affected by such a reform.  The expected increase in revenue could be used for relief of social security taxes or for an increase in transfer payments (for example, for an eco or climate bonus).  In times of economic and financial crisis and accompanying additional state expenditure, a reform of company car taxation would be an ecologically and socially sensible contribution to counterfinancing and business cycle programs.

Further information

Together with FiFo Institue for public Economics at the University of Colgone and the professor of Law Stefan Klinski, GBG examines the tax treatment of company cars in germany. For providing a comprehensive overview, the investigation analyzes both the benefits in kind of the private use of company cars and the tax regulation associated with their purchase.
You can download the English summary here.

02/2013