Assignment of a company vehicle to an employee

Many business owners decide to register a vehicle in the company’s name and then make it available, partially or fully, to one of their employees. These are known as “mixed-use vehicles”, and their tax treatment is controversial and disputed. For this reason, I would like to explain the conclusions drawn from the current criteria.

Personal income tax (IRPF)

The company must take into account that assigning a company vehicle to an employee has the following implications:

1. It is considered a benefit in kind for the employee.
2. The valuation is set at 20% of the vehicle’s acquisition value, if the vehicle is owned by the company, or at the market value if new, if the vehicle is not owned by the company. The resulting amount is then adjusted by applying the percentage of personal use of the vehicle, which determines the value of the benefit in kind.
3. To determine the percentage of personal use, the Tax Authorities apply a “proportionality criterion” based on the applicable Collective Agreement. In this way, all hours of the day not spent working, including sleeping hours, weekends and public holidays, are treated as personal use. As a result, approximately 70% of the time is considered personal use.
4. Based on this valuation, the company must make a payment on account of personal income tax and pay it to the Tax Authorities (Form 111).
5. The benefit in kind will be the sum of the valuation plus the payment on account, if this payment on account is not deducted from the employee, or only the valuation, if the amount of the payment on account is deducted from the employee.

VAT

The main aspects to consider at present are as follows:

1. The assignment of the vehicle to the employee is only subject to VAT if there is a “consideration” paid by the employee to the company for this assignment, through a payment, a deduction from salary, etc.
2. The company may deduct the VAT incurred insofar as the vehicle is used for business purposes. The most controversial point is determining what percentage of the VAT incurred may be deducted.

In general terms, the “50% presumption” established by the VAT Law applies. This criterion has recently been confirmed by the Supreme Court and by the Central Economic-Administrative Court (TEAC).

The Tax Authorities or the taxpayer may rebut this presumption by providing evidence. What the Tax Authorities have done in recent years, applying the “proportionality criterion”, is not accepted as evidence in itself, but only as an indication. The issue therefore remains unresolved.

These criteria should be taken into account to avoid tax adjustments and also to prevent excessive action by the Tax Authorities. Ongoing monitoring of this matter is essential.

If you have mixed-use vehicles in your company and have questions about how they should be managed or about the risks involved, we can discuss it whenever you wish.