3 November, 2017

Fringe benefits for using company vehicles by employees

The use of company vehicles by employees for private purposes is qualified as a fringe benefit, which is determined, following Spanish Personal income tax rules, by 20% of the acquisition price of the vehicle, when it belongs to the employer company, or its market value if it was new, when it does not belong to it.

The use of company vehicles by employees for private purposes is qualified as a fringe benefit, which is determined, following Spanish Personal income tax rules, by 20% of the acquisition price of the vehicle, when it belongs to the employer company, or its market value if it was new, when it does not belong to it.

In the event of a mixed use by the employee, for both employment and private purposes, the fringe benefit is proportional to the time it is used for these latter.

In order to avoid the practical problems that quantifying a fringe benefit implies, when there is a mixed use of the vehicle, it is worth seeking for advice on whether it is feasible to obtain an advance valuation agreement on such fringe benefit, to determine the withholding tax applying on it and which must be paid by the employer to the Spanish tax authorities.

The Spanish tax authorities hold the view that the fringe benefit must be computed for all the time in which the vehicle is at the employee’s disposal, out of its working hours. Such criterion can lead to a fringe benefit allocation in excess in certain cases, (such as the medical visitors or commercial employees, for whom the vehicle is a working tool). Several Court resolutions consider that the availability criterion does match with the wording of article 43 of Spanish Personal income tax Law which refers to the “use” and not the “availability to use” the vehicle. Such case law also concludes that the availability criterion must be staggered by the characteristics of the job performed by the employee.

Notwithstanding this, the Spanish tax authorities strongly apply the criterion that takes into account the vehicle’s availability.

At this point, it is rather complicated, in practice, to demonstrate the time in which the employee has the vehicle at his disposal or, at best and following the existing case law, utilizes the vehicle, specially in working days in which the vehicle’s private use may be controversial in certain groups.

Spanish regulations provide a tool that is worth taking into account by your company, especially whenever there is a mixed use, and that consists in obtaining an advance valuation agreement of the employees’ fringe benefit, for the purposes of determining the withholding tax that must be practiced by the employer company.

It consists of a written process, whose resolution must be produced in a maximum six – months term and that has to be submitted prior to the vehicle’s assignment to the employee. Both the Spanish tax authorities as well as the company must apply the agreement’s fringe benefit valuation during its term of validity.

It is, therefore, a binding process to establish the basis on which the withholding tax must be applied and which can help providing legal certainty in a rather debated matter throughout tax audit processes; hence, being worthwhile getting accompanied by the appropriate advice.


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