Employee pays for his company car: a number of consequences
If an employee is provided with a company car, he is taxed on a benefit in kind. If that employee pays a contribution for that company car, that contribution is deductible from the benefit. On the other hand, costs borne by the employee himself do not appear to be deductible from the taxable benefit.
Deductibility of car expenses and benefits in kind
The tax deduction of car expenses is very limited for both natural persons and companies. In summary, it means that the deductibility depends on the CO2-emission of the vehicle.
But if it concerns a company car that is made available to an employee, then there is a benefit in kind and the company car is considered as salary. And there is no restriction on salary as regards the deductibility.
Suppose, for example, that the car costs 10.000 € per year. And suppose that the benefit in kind amounts to 3.600 €. In that case, you may deduct the benefit in kind from the car costs (that leaves 6.400 €). And on that remaining portion, you must apply the deduction restriction. Hereafter we assume that the deduction limit is 75%.
How does that work in practice? The car costs are simply deducted in your accounting. But in the corporate tax return, the non-deductible part of those car expenses is added again via the so-called "disallowed expenses". In this case, that would be 6.400 € x 75%.
The employee's contribution
Now suppose that the employee pays a personal, monthly contribution for the company car. For example, if he pays 50 € per month, 600 € annually, the taxable benefit is not 3.600 €, but 3.000 €.
The question then is how much ends up in disallowed expenses. Still 75% of 6.400 € or 75% of 7.000 € (since the taxable benefit in kind is only 3.000 €).
Court of appeal
In a case brought before the Brussels court of appeal in 2017, it concerned an employer who offered his employee a company car. But the employee paid exactly the amount of the benefit for that company car. As a result, the employee actually had no taxable benefit.
The tax authorities were of the opinion that the deduction limitation for car expenses had to be applied to the total amount. After all... there was no benefit in kind anymore.
But the Brussels court of appeal did not follow the tax authorities.
The court is of the opinion that the deduction limitation applies to the person who has to bear the costs. In other words, to the extent that the staff member incurs the costs (through the reimbursement), the deduction restriction for car expenses must be applied there, and not to the person who is reimbursed for the costs. The fact that the staff member will not effectively contribute to the costs is not relevant in this respect.
Court of Cassation
The case eventually ended up before the Court of Cassation. And that recently ruled in the same way as the Brussels court of appeal. It basically boils down to the fact that only professional use by the company is subject to the deduction limitation. To the extent that due to the granting of the advantage there is no professional use of the vehicle by the company, there is no deduction limitation.
The fact that the company receives reimbursement of exactly those costs is not relevant for the deduction limitation.
The employee bears the costs
A discussion was held before the court of first instance of Antwerp which at first sight is not directly linked to the deductibility of car costs. In the present case, a bank had offered its employees a company car. They were taxed on this in accordance with the standard valuation rules.
But the employer deducted all kinds of small costs from the taxable amount that the employee paid himself, such as a car wash, a windshield wiper that was replaced, the petrol costs abroad. The employee therefore did not pay a personal contribution, but did pay certain expenses. The question was whether those amounts could be deducted from the lump sum benefit in kind.
Personal contributions are certainly deductible. That's the law. But is bearing such costs the same as a personal contribution? The tax authorities did not think so and the court of Antwerp confirms this point of view. The reasoning they make is that the costs paid by the employee themselves are not part of the lump sum benefit in kind, and for that reason they should not be deducted from it.
No personal contributions, no impact on disallowed expenses
Although taxation does not always rhymes with logic, we must conclude that the sums employees spend on their company car in this way should not only not be deducted from the taxable benefit, but that those sums also have no impact on the amount of the car costs.
Let's see whether the minister of Finance with the announced reform of the deductibility of company cars does not counteract the case law for taxpayers with new legislation.