On 28 July 2023, the AEAT published a note setting out its criteria for the transfer of mixed-use vehicles by companies to their employees. The tax implications for both personal income tax and value added tax have been the subject of debate and controversial interpretation criteria in recent years.
The Tax Administration analyses the interpretative criteria established by the Court of Justice of the European Union (CJEU), the Audiencia Nacional (AN) and the Central Economic-Administrative Court (TEAC) and, by means of this note, consolidates the guidelines that should govern the taxation of the transfer of vehicles to employees.
At Bové Montero y Asociados we analyse the most relevant points of the note:
1. CRITERIA OF AVAILABILITY FOR PRIVATE USE IN VAT AND PIT
The taxation of the transfer of mixed-use vehicles to employees is governed by the following principles of necessity and availability, applicable to both Value Added Tax (IVA) and Personal Income Tax (IRPF).
On the one hand, the AEAT note defends that it is up to the company to prove the need of the vehicle for the performance of the work activity. On the other hand, it is up to the employee to prove that the vehicle is not available for private use.
Once the need for the vehicle has been proven and the private use has been confirmed, the criteria of availability for private use is applied, which makes it possible to determine the degree of use of the vehicle for the performance of the activity.
The Inspectorate and the National Court (AN) have estimated the availability of vehicles based on the annual time that does not correspond to the employees´ working hours, according to the provisions of the collective agreements and the characteristics of the activity developed. This formula results in percentages of private use of around 80% (20% being the percentage considered for business use).
This criterion has been supported by case law and the Court of Justice of the European Union (CJEU).
However, since the burden of proof is on the taxpayer, exceptions must be considered for certain categories of workers. (e.g. workers who constantly commute), the specific nature of the company’s activity, longer than normal working hours, among other characteristics.
2. CONSIDERATION OF THE ONEROUS OR GRATUITOUS NATURE OF THE TRANSFER OF VEHICLES BY THE EMPLOYER FOR VAT PURPOSES
In recent years, there has been a debate as to whether the transfer of a company car to an employee for his private use is considered to be a supply of services subject to VAT.
According to the Court of Justice of the European Union (CJEU), the transfer of a car can only be considered as a supply of services subject to VAT if it is made for consideration, i.e. if there is onerousness.
The CJEU identifies elements that indicate a lack of onerousness, such as the lack of payment by the employee, the non-use of part of his salary or the lack of choice between the benefits offered by the employer in exchange for the use of the vehicle.
In the same sense, the Central Economic-Administrative Court (TEAC) adds that the transfer of a vehicle will be considered onerous if the employee:
a) Makes a payment for the transfer.
b) Deducts part of his salary for the use of the vehicle.
c) Chooses between different benefits offered by the employer in exchange for the use of the vehicle.
d) The employment contract or ancillary document stipulates that part of the work performed is to be considered as compensation for the goods or services received.
Thus, the idea that the mere consideration of the transfer of a vehicle as remuneration in kind for personal income tax purposes automatically implies an onerous supply for VAT purposes.
3. DEDUCTIBILITY OF THE FEES PAID BY THE ENTREPRENEUR OR PROFESSIONAL FOR THE ACQUISITION, LEASE OR TRANSFER OF USE OF VEHICLES BY OTHER MEANS
The deductibility of input VAT payments is conditioned on the vehicle being used for an activity subject to VAT and this (the use) depends, according to the AEAT’s note, on all the above in relation to the availability of the vehicle and the concurrence of onerousness in the assignment.
In this regard, the AEAT’s considerations; in relation to mixed-use vehicles, can be summarized as follows:
– If the part for private use is assigned for a valuable consideration, the vehicle is understood to be fully assigned to the activity, in which case the VAT borne by the entrepreneur may be considered fully deductible.
– If the part for private use is assigned free of charge, the asset will be partially assigned (depending on the percentage of availability). Therefore, the deduction of VAT borne by the entrepreneur will also be partial according to this percentage of availability.
In this way, we can see that the AEAT’s note intends to leave without practical effect the presumption of 50% availability established in the VAT law (article 95.2), which has been applied almost continuously in recent years.
4. SELF-CONSUMPTION OF SERVICE
Following the AEAT´s argumentation, in cases where an entrepreneur or professional has generated the right to deduct input VAT on the purchase of a vehicle and subsequently the degree of use is altered and a free transfer of the same is made; this transfer will be treated as an onerous supply of services for consideration and will be subject to VAT as self-consumption of services.
5. DETERMINATION OF THE TAX BASE FOR VAT AND PERSONAL INCOME TAX PURPOSES
Although the AEAT note assimilates the VAT and personal income tax treatment in terms of the degree of availability and involvement, it considers instead that the quantification of the tax base must be made in accordance with the regulations of each tax, which do not coincide.
– VAT:
o Vehicle owned by the entrepreneur: The tax base coincides with the market value of the assignment (or, in absence of a comparable one, with the cost assumed by the employer to carry out such assignment.).
o Vehicle under lease (renting or analogue): The tax base is equal to the rental paid by the entrepreneur.
– PERSONAL INCOME TAX:
o Vehicle owned by the entrepreneur: The basis for payment on account is 20% of the purchase price of the vehicle.
o Vehicle under lease (renting or analogue): The basis for the payment on account is 20% of the market value of the vehicle if it is new.
These quantification rules must be applied considering the percentage of availability for private use.
6. CONCLUSION
The transfer of vehicles by companies to their employees entails a series of tax implications that must be carefully analysed and documented.
Similarly, the tax treatment of other benefits in kind that companies may offer to their employees must be analysed on a case-by-case basis.
For any additional information or clarification regarding this communication, please contact the tax department or your usual contact person.
