Alexander Unfried, PwC: Car taxation impacted by Ecology and Connectivity
Fleet Europe has published, with the expertise of PwC, the 2016 Fleet Europe Taxation Guide. It is the 10th edition of this unique Guide. With Alexander Unfried, Global Automotive Tax Sector Leader at PwC we look at the most important trends with regard to company car taxation, and these trends deal with sustainibility and connectivity.
What are the main trends impacting company car taxation in Europe in 2016?
Alexander Unfried: Basically, we see two major trends which both are continuing from previous years. The first is that in many countries the tax rates for various car related taxes increase. This should not be a surprise as Governments are faced with continuing budget deficits resulting from increasing cost in maintaining or developing infrastructure. According to the German Government the maintenance of the infrastructure in Germany cost some EUR 7.5 billion every year, however, only EUR 5 billion for maintenance and new streets shall be spent. The situation is similar in other European countries. Furthermore, the low oil prices provides currently less taxes (VAT, gas and oil taxes) which in most cases cannot be compensated. Finally, unexpected cost from political crisis in Europe (e.g. Greek finance crisis, Syria refugee crisis) also increased the need for further tax income of the various countries.
The second trend is that the idea of environmental related taxation is further developed in several countries. Thus tax incentives for hybrid or electric vehicles are further introduced and also CO2 related car taxation is implemented.”
What elements will impact car taxation in the upcoming years, with what effect?
Alexander Unfried: “We at PwC expect that the two major trends "increase in car taxes" and "further focus on environmental taxation" will continue in the upcoming years. Looking into these trends in more detail we expect that for increasing the taxes additional methods will be introduced. One example will be increased road taxes. The taxation of specific streets (e.g. highways) or an entrance fee into cities are possible methods to generated additional taxes. Countries with already environmental tax benefits may reconsider their strategy to support hybrid and electric vehicle sales. Here we expect the rise of direct subsidies for buying such vehicles. The reason is that based on experience in the past (e.g. Norway, Germany after crisis 2009) direct subsidies seem to be a bigger stimulator than indirect tax savings through lower payroll tax, VAT or other car taxes.
Another trend that will effect car taxation is the connected car. OEMs and Tier 1 suppliers are making significant R&D investments despite the uncertain economics of the connected car. The safety-assistance innovations should not have an impact on taxes but rather on the question whether these innovations will increase the car price as such. However, the access to the internet, the data collection, the data transfer and the analysis of these data leading to new business models and income opportunities attract the tax authorities. Now what does this mean for taxes? Looking at the functional areas entertainment, well-being and home integration services can be seen as a benefit in kind provided to the employee and may be taxable for payroll or individual tax. Another question is, e.g. with respect to vehicle management, what can be the tax consequences if the service is provided outside of the country? For example if a French company using the service in a company car buys the service from a UK service provider or Italian car manufacturer can France tax the fee for the service with a withholding tax? What is the correct VAT treatment? On the long run, it should be expected that the Governments will request a fair share of tax income from this new business. Thus, beside clarification in existing tax rules new forms of taxation should be considered like special internet taxes, air using taxes and various kinds of withholding taxes. And so fleet managers should carefully review the tax consequences when introducing any kind of connected car services to avoid unexpected additional tax cost.”
Looking at a global scale is Europe an attractive continent to provide company cars taxwise?
Alexander Unfried: “This question is not easy to answer. You will find as many car taxation systems as there are countries in the world. Even in Europe the complexity of different systems and taxes to be considered is tremendous.
Considering the employee it seems that nearly all countries in the world tax the private use of a company car. Then the question of attractiveness relates mainly on the concrete calculation scheme and the individual tax rates. However, it can be stated that in countries with high income tax rates like in central Europe it is often more beneficial to have a company car for private use rather than to earn the cash equivalent.
Depending on the scheme providing a hybrid or electrical vehicle gives often also tax benefits. This is quite wide established now in Europe, in the recent past also in Eastern Europe. However, you will find that counties like US (especially California) or China have comparable or even more attractive tax incentive schemes.
As a final conclusion: whether or not a company car is attractive from a tax perspective depends on the size of the car, the usage, the engine and age. This must be then compared in each individual case, country and maybe state or city.”
The Fleet Europe Taxation Guide tackles the complexities of company car taxation in 23 European countries, also giving an overview of the main changes since last year. The digital version of the Guide includes 5 more countries. For more info, and to order the guide, go directly to the Fleet Europe e-Shop.
Picture copyright: PwC.
| 17/05/2016 | Steven Schoefs