The taxation of company cars has recently been clarified by the AEAT. Since it made public a “Note on issues relating to mixed use vehicles transferred to employees“.
This addresses the treatment of the increasingly widespread cases of transfer of vehicles to employees by the companies for which they work. This has led to a series of modifications in the application of the regulation, both in terms of doctrine and case law. At Arrabe Integra we consider it appropriate to dedicate a few lines to deal with this new criterion and to list its main characteristics.
Taxation of company cars for employees
Although the published note offers little clarity for its interpretation, the conclusions we can draw from it are the following.
There are five points to be taken into consideration and on which this new interpretation is based:
- Criterion of availability for private use, applicable to VAT and personal income tax (IRPF).
- Consideration of whether it is an onerous or gratuitous supply for VAT purposes.
- Degree of use and, therefore, deductibility of the VAT borne in its lease, acquisition or transfer of use.
- Self-consumption of services.
- Determination of the taxable base, both for VAT and personal income tax purposes.
What must be taken into account when assigning the use of a company car for employees?
Next, we are going to go deeper into each of these five points mentioned to better understand this new interpretation of the rule.
Criterion of availability for private use in VAT and IRPF
This new criterion states that it is up to the company to prove the need for the use of the vehicle for work activities and the non-existence of private use. It also indicates that the percentage of private use is determined by the annual time that does not correspond to the working day. For this purpose, the following points must be taken into consideration:
- Collective bargaining agreement.
- Characteristics of the job.
- Peculiarities of the business activity.
Consideration of the assignment as a supply for consideration or free of charge for VAT purposes
The CJEU states that the provision of services subject to VAT will be considered to be the transfer of vehicles made for consideration. Thus, they will be considered to be made for consideration when there is a legal relationship between the parties. This relationship consists of an exchange of reciprocal benefits where the employee pays or waives part of his remuneration for the use of the vehicle.
Specifically, if any of the following assumptions occurs:
- The worker makes a payment for this assignment.
- The employee waives part of his monetary remuneration, deducted from his salary, in exchange for the benefit granted.
- The worker chooses between different benefits offered by the employer by virtue of an agreement between the parties. Provided that this choice entails the waiver of a part of his remuneration in cash.
- A determined part of the work rendered and economically valued can be considered as consideration for the good or service received. This must be provided for in the employment contract or ancillary document.
Otherwise, there will be free of charge and not subject to tax, except in the case of self-consumption of services.
Are the fees paid by the entrepreneur or self-employed person for the purchase, lease or transfer of use deductible?
Whether or not it is deductible will depend on the degree to which the vehicle is used for the economic activity subject to the tax. This can be total or partial.
If the vehicle is used exclusively for business or professional purposes, 100% of the input VAT may be deducted.
If the vehicle is also used for private purposes, a lower percentage may be deducted.
In principle, the legal presumptions of Article 95.Three of the VAT Law will apply, which establishes that the degree of business or professional use is 50%. With the exception of certain vehicles which are presumed to be 100%.
These presumptions may be modified by the Administration or by the taxpayer by means of legally admissible evidence. In addition, deductions must be regularized when the degree of effective use varies.
Self-consumption of services
When the businessman or professional has generated the right to deduct the tax paid, and there is a transfer without consideration, it will be assimilated to the provision of services for consideration. This assimilated provision must be taxed as a self-consumption of services.
What is the taxable base for VAT and personal income tax purposes?
To calculate the taxable base, first we must know if it is an onerous or gratuitous cession. In addition, the valuation will not be the same for VAT and IRPF purposes.
Taxable Base for VAT purposes
If the assignment is considered onerous, the taxable base will be the market value of the assignment. This is due to the application of the special rule of article 79. Five of the VAT Law due to the existence of a link between the parties.
It should be noted that the market value is the amount that would have been agreed upon by independent parties under normal market conditions.
If the transfer is considered to be free of charge, there will be no taxable amount unless it is a self-consumption of services. In that case, the taxable base will be determined by the total cost borne by the entrepreneur in the performance of the service.
Taxable income for personal income tax (IRPF) purposes
We will calculate the taxable base by applying 20% per year on the cost or value of the vehicle. Modulated by the percentage of availability for private use.
Examples of application of the Taxable Base
In order to make its interpretation easier, we are going to introduce a series of examples showing how the rule should be applied. And so that the taxation of company cars can be seen more clearly.
A company acquires a vehicle for its business that is used by its employees only during the working day
This would be a case where the general rule would apply:
- Mixed vehicle. VAT deductible at 100%.
- Tourism. VAT deductible at 50% unless a different percentage can be justified.
A company that acquires a vehicle that it lends to an employee for use outside his working day
In this case we would have two possibilities:
IF the employee waives part of his salary in exchange for being able to enjoy the use of the vehicle, it would be considered an onerous assignment. In this way, the company will have to charge VAT to its employee, and in turn will be able to deduct 100% of the VAT incurred in its acquisition.
If the employee enjoys the use of the vehicle, but it does not have repercussion in his salary, we will be in front of a gratuitous cession. In this case, we will apply the general 50% allocation rule. However, it is here where the AEAT considers that its new criterion of availability for private use should be applied. As mentioned above, a percentage will be determined according to the hours established in the applicable agreement. Thus, the percentage calculated must be applied to the original 50%, which will reduce it.
As already stated, the AEAT has not provided much clarity as to the application of this new criterion regarding the taxation of company cars. However, this is how we understand it from Arrabe Integra, and we will remain attentive to inform you about any progress in the application of this new criterion.
