Changes to benefit in kind charges for home to work company car travel

Posted on 7th January, 2011

Estimated reading time 3 minutes

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.


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.


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.