29

Jun

2022

Transfer of the use of vehicles to employees for their private use

Transfer of the use of vehicles to employees for their private use.

Tax authorities launch an information campaign on the transfer of vehicles to employees for their private use

The letters are aimed directly at high-end vehicles, which are common in both large companies and SMEs and on which the tax authorities are focusing their attention due to their higher value.

 

The Tax Agency is sending out a mass mailing of letters to companies warning them that it knows they are abusing their company cars. The letters provide the companies with information about the vehicles they own and those they have under leasing or renting contracts, a list of which is attached.

Specifically, the letters focus on the tax consequences of transferring the use of vehicles to employees for their private use, i.e. remuneration in kind for personal income tax purposes without declaring it, but the AEAT’s actions with regard to company cars also target VAT and corporate income tax expenses.

The letters are aimed directly at top-of-the-range vehicles, common in both large companies and SMEs, which are targeted by the Treasury because of their higher value and, unlike others, especially those marked with the company logo, because of the presumption of their regular use in the employee’s private life.

Personal income taxpayers (individuals and entities in attribution of income not subject to corporate income tax) are usually the worst off in terms of being able to deduct a vehicle used for business purposes and its ancillary expenses. Firstly, the deduction of any expenses relating to the vehicle would require it to be considered as an item of property assigned to the economic activity carried out by the taxpayer.

There are two types of vehicle:

Risk-free vehicles

– Mixed vehicles intended for the carriage of goods.

– Vehicles intended for the provision of passenger transport services for remuneration.

– Vehicles intended for the provision of driver or pilot training services for remuneration.

– Those intended for the business travel of commercial representatives or agents.

– Those intended to be the object of a transfer of use on a regular and onerous basis.

In these cases, it is presumed that the vehicle is fully assigned to the activity and its deduction as an expense via depreciation and other ancillary costs (petrol, repairs, insurance, municipal taxes, etc.) does not, in principle, raise any doubts. However, it should be borne in mind that this list is limited to certain activities or characteristics of the vehicle. Thus, for example, any professional who is not an agent or sales representative will not be able to deduct the vehicle, even if he/she performs similar tasks. Or, if the vehicle is not classified as exclusively for the transport of goods, it would not be eligible for this exception either.

The rest of the vehicles

In accordance with this provision, the rest of the vehicles, given that the activity will no longer be among the exceptions contemplated above, are required by the tax authorities to be used exclusively in the activity.

In the case of exclusive use of the vehicle in the activity, both the depreciation of the vehicle and the expenses derived from its use (repairs, fuel, insurance, etc.) may be deducted in order to determine the net income from the activity. If the use of the vehicle in the activity is not exclusive, i.e. if it is also used for other purposes, the vehicle will not be considered to be used for the economic activity, and neither the depreciation nor the aforementioned expenses derived from its use will be deductible in the determination of the net yield.

 

 Deduction of VAT

Different rules apply to VAT than to personal income tax. In VAT, a deduction of 50% of the input tax is maintained. This results in the paradox that an expense is not tax deductible for personal income tax purposes, but 50% of the tax liability is deductible.

It should be borne in mind that if the vehicle is also used personally by an employee, administrator, etc., this will generate a payment in kind to be included in the employee’s salary.

In short, depending on the type of vehicle, the activity carried out, the tax in question and the type of taxpayer, we can deduct all, part or none of it.

For further information, please consult a tax advisor.