company car taxation - dt.tesoro.it car taxation ... fiat bravo 1.6 16v 105hp €162 €510 =...

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Purpose of the study

Assess economic and environmental effects of the taxation of company cars

In particular: >Are fringe benefits (car services) taxed at a too low level relative to

cash remuneration?

>Is it possible to provide some ball park estimates of:> social welfare losses?> effect on CO2-emissions etc.?>Budget losses?


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Main conclusions

Under taxation of company cars the norm in EU……though with wide variation

Results>Significant tax losses at EU level (two digit € billions)>…distortion of consumer choice (two digit € billions)>Sizeable additional emissions of CO2 as well as increased adverse

local environmental impact

Estimates need improvement…

…more about that later


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Tax neutrality the aim

Character of remuneration of employes should not affectemployees spending choice>Public versus privat transportation>Buying a new television as opposed to a more flashy car

What to look for:>Taxation at company level (depreciation rules, VAT treatment)

>Our study suggest that this is mainly a non-issue>Low effective taxation of fringe benefits at employee level

>Main focus of our study


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Fringe benefits: taxing costs at employee level

Cost components to look for>Investments costs (financing the investment, depreciation)>Fuel costs>Other running costs (insurance, maintenance, repair)

Firm cost principle>tax base equal to costs facing employer

Opportunity cost principle>Tax base equal to the costs the employee would have faced


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Company car taxes in practice

The actual costs for employer/employee not known……compliance costs associated with getting it high(Hence) tax rules are indeed very mechanistic>All investment and running costs approximated as a percentage of

the value of the car>Marginal fuel use not taxed as rule


Concept Explanation

List pricePrice that the employee would obtain when buying privately (opportunity cost

approach)

Acquisition cost Price paid by the company, typically less than list price (firm cost approach)

(Fair) market value or replacement

costAn amount estimated following a specific methodology of the tax authority.

7 Helge Sigurd Næss-Schmidt| Rome 15th December 2012

Subsidy estimates highOur subsidy concept: what is the difference between neutral (imputed) tax base

and actually imputed tax baseOur subsidy rate is calculated as the difference divided by the neutral tax base

multiplied by 100Segment Small Segment Medium Segment Large

Group A: Subsidy up to 10% Finland, Poland Poland United Kingdom

Group B: Subsidy 11%-20% Denmark, Sweden Denmark, Finland, France,

Netherlands, Sweden, United

Kingdom

Denmark, Finland, France,

Netherlands, Poland, Sweden

Group C: Subsidy 21%-30% France, Luxembourg,

Netherlands, Spain

Austria, Luxembourg,

Slovenia, Spain

Czech R., Germany, Italy,

Luxembourg, Slovenia, Spain

Group D: Subsidy more than

30%

Austria, Belgium, Czech R.,

Germany, Greece, Hungary,

Italy, Portugal, Slovakia,

Slovenia, United Kingdom

Belgium, Czech Republic,

Germany, Greece, Hungary,

Italy, Portugal, Slovakia

Austria, Belgium, Greece,

Hungary, Portugal, Slovakia,

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Some intuition behind results

Depreciation costs alone is over 20 per cent per year for a new car>2/3 of original car value lost after three years

Yet imputation rates, meant to cover all investment and running costs but fuel, below 20 per cent in 11 countries

…while private fuel use is largely untaxed


9 Insert names | city | date in footer

Example: Fringe benefits vs. leasing costs in Italy, 2011, per month

>Fringe benefit: Schedules of the Automobile Club d’Italia (ACI)>Leasing rates: ALD Automotive Italy>Fuel efficiency: www.car-emissions.com

Car make Taxable fringe benefit Leasing rate incl. VATplus fuel cost*

Fiat Bravo 1.6 16V 105hp €162 €510 = (€426 + €84)

Audi A6 2.0 TDI Avant 140hp SW €232 €983 = (€888 + €95 )

Assumptions:Diesel price (October 2011) €1.52

15.000Mileage per year, kilometres

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Does it matter, yes company cars are important

registrations by segment in 18 EU countries, 2008:> share of registrations on high side, length of company car service on low side


31%

38%

48%65%

70% 24%69%

62%

52%

35%

30%

76%00

01

01

02

02

03

03

04

04

05

1 Mini 2 Small 3 Lower Medium 4 Medium 5 Upper Medium 6 Large

Registrations, millions

Company registrations Private registrations

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Potential large direct fiscal losses


Caveats on calculations> We may well over estimate the number of cars used by employees for commuting or leisure

purposes (for Italy our estimate of company car stock of 2.1 million 25 per cent higher than CE Capital data)

> ...but we have been forced to use tax rates for calculating tax losses that often do not include social security contributions

> Do not include dynamic effects (less and smaller company cars means less revenue from fuel taxes etc)

However, losses must run into billions of € (perhaps 3-4 in Italy)

Static tax revenue losses and their determinants, 2008

Rates for imputing tax base

Average marginal taxes rates, in

percent

Purchases of company car as percent of GDP

Loss, percent of GDP Loss, billion €

0-15 percent 56 1.9 0.8 25

15-24 percent 52 1.2 0.4 8

Above 24 percent 55 1.3 0.4 16

Countries with other systems 58 1.3 0.6 5

Total (weighted average) 55 1.4 0.5 54

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Heroic estimates of effects

Study effects are based on:Behavioural effects from Dutch studies on company carsScaling up to EU level by looking at EU tax rules and stock of company cars

And the numbers are:Total stock of cars up by 8 to 21 million carsAverage value of EU company car up by € 4000 to € 8000fuel consumption up by 4 to 8 percent


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Arguments for lower end estimates

Implicit/explicit price elasticities in Dutch studies substantially higher than standard effects in litterature:> Effect of user costs on price and number of cars

Be cautious in extrapolating results from one country to all other countries in EU

Polk data base overestimates the number of companyowned cars being used for employee travel


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Arguments for higher end estimates

Structure of Dutch economy (prosperitity, tax rules, share of company cars) close to the EU15 average

Dutch studies focus on taxation company cars while our “control” elasticitities are drawn from macro studies

Effect on fuels use may even be underestimated in Dutch studies:>Disregard the effect that subsidised cars may increase commuting

distances>Fuel use effects when larger and more company cars are sold in

secondary market


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Policy implications

Much more neutral taxation rules needed>Higher imputation rates needed>Fringe benefits to be subjected to social security contribtuions>Deal with untaxed marginal use of fuelThink about objectivies>if mobility is a concern, then aim for ”fixed” support per kilometre>not a transport subsidy depending on price of carSecondary issues>Should energy efficiency be build into company car taxation ruels?>Do we need different marginal incentives for company cars than

other cars?>Important to put in place overall effective system for taxing cars…>… not too much tinkering at the margin


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Obvious limitations in this study

We have relied on two main sources of data>Polk data on car registrations which do include cars used

exclusively for business purpose>KPMG data for taxation of company cars which does not allows to

asses the precise tax treatment at employee level

Use of company cars>We have some knowledge from Dutch and Belgian studies

>Do suggest that commutting and leisure travel is very important relative to work-place to work-place travel, but further research is needed

Effects of too low taxation>Extensive use of two Dutch studies calls for cautious approach


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Thank you very much

Helge Sigurd Næss-Schmidt / [email protected] and Director, MSc EconomicsDirect and mobile phone +45 5076 3030

Copenhagen EconomicsSankt Annæ Plads 13 / DK-1250 Copenhagen, DenmarkPhone +45 2333 1810 / www.copenhageneconomics.com


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