The Bundesfinanzhof (BFH) has once again confirmed, VI R 71/12, that no benefit in kind from private use is taxable when an employer has prohibited the private use of a company car. In such cases, the tax office may not assess a private use benefit. Background: As a rule, an employee who also uses a company car provided by the employer for private journeys must pay tax on a benefit in kind. This is taxed as wages either by means of a logbook or, on a flat-rate basis, under the so-called 1% rule. According to the BFH, however, such use is only subject to wage tax if the employer permits private journeys. If the employer has prohibited private use of the vehicle, the BFH holds that no wage character is to be assumed. The benefit therefore does not qualify as employment income. If the employee uses the vehicle privately despite the prohibition, this likewise has no wage character according to the BFH. Our Rechtsanwälte (German Attorneys-at-Law) will be happy to draft the relevant agreements for you, as they know how the wording should be set out.
Frequently asked questions
Frequently asked questions
Does private use of a company car need to be taxed if the employer has prohibited it?
No. In its ruling VI R 71/12, the BFH confirmed that no monetary benefit for private use is to be recognized if the employer has expressly prohibited the private use of the company car. In such cases, the tax office may not assume and tax private use on a flat-rate basis.
How is the taxable benefit from private use of a company car generally determined?
If an employee also uses a company car for private purposes, the resulting taxable benefit is subject to wage tax. It is calculated either via a properly maintained logbook or, on a flat-rate basis, under the 1% rule, applying 1% of the gross domestic list price per month.
What are the tax consequences if an employee uses the company car privately despite a prohibition?
According to the BFH, private use in breach of an explicit prohibition does not constitute wages. The benefit is therefore not classified as employment income and is not subject to wage tax. The prerequisite, however, is that the prohibition on private use was issued in earnest.
What should be considered when contractually regulating a ban on private use?
For the tax office to recognise the ban on private use, it must be formulated clearly, unambiguously, and verifiably. A carefully drafted written agreement between employer and employee is therefore essential to secure the tax advantages of this case law.