The German Federal Ministry of
Finance has commented on the treatment of company cars provided for commuting
between home and the employee’s regular place of work with regard to wage tax.

Background

While the benefit in kind charge
for the private use of a company car is typically taxed at the rate of 1%, the
amount calculated this way increases monthly by 0.03% of the list price for every
kilometre driven between home and the regular workplace, if the car is used for
that journey. The German Supreme Tax
Court decided that this benefit in kind charge had to be considered an
adjusting item with regard to income-related expenses and therefore, that it only
applied to the extent the company car had actually been used for commuting
between home and the place of work. To
calculate the additional amount it is now possible to agree an individual
valuation of the actual journeys with a charge of only 0.002% of the list price
per kilometre being possible. This view
contradicts the previous administrative opinion of the German Federal Ministry
of Finance.

The application of this new ruling

This ruling applies to advance
payments up to and including those in 2010 in all outstanding cases concerning assessment
procedures. From 2011 onwards, the new
ruling is also applicable to wage tax deduction procedures. With regards to this matter, in agreement with
the employees, employers have to determine the application of this ruling
(individual valuation) or the application of the rate of 0.03% for every
calendar year uniformly. It is not
possible to change the method during the calendar year.  However, with regard to the assessment for
the income tax declaration, employees are not bound to the method chosen to
levy wage tax, and can change the method for the entire calendar year for all
company cars provided to them.

Application of individual valuation concerning wage tax deduction procedures

If an employer decides in
accordance with an employee to apply the individual valuation, the employee has
to confirm to the employer monthly in writing which days (specifying dates) he
actually used the company vehicle to commute between home and his regular place
of work. Stating only the number of days
will not be sufficient. The employer has
to keep these statements as proof for wages records. With regard to the deduction of wage tax, it
is possible to take the preceding month’s statement as a basis for estimation
retrospectively. If, in the context of
the wage tax deduction procedures, an individual valuation of actual travel is
made, employers have to set a limit of 180 journeys per year regarding all
company vehicles provided to the employee. It is impossible to set a monthly limit of 15 journeys.

Wage tax deduction proceedings

If, in the context of wage tax deduction
proceedings, the rate of 0.03% has been applied by an employer until now, he
has the right to change to the application of individual valuation during the 2011
calendar year. However, the method can
not be changed at any other time during the 2011 calendar year. The limit of 180 days has to be reduced by 15
days in respect of all months where the rate of 0.03% was applied.

Resources

German Federal Ministry of Finance online (BMF online)

(§ 8 par. 2
sentence 3 German Income tax Act)

For further information or to discuss any of the issues raised, please contact Joachim
Menz on +49 89 2422 300.