Your employer might have granted you a new out of the showroom company car. You are overwhelmed with joy and you appreciate the gesture of your employer very much….till you receive your salary specification. Suddenly 25% of the Dutch catalogue value of the company car is pro rata per month added to your taxable income . As this is a remuneration in kind, your net salary has been reduced with the wage tax amount over this 25% amount. Then you learn about the company car and private use.
Suddenly the company car is in a different perspective.
What is this 25% about related to my company car?
The rule is that anything you receive from your employer is taxed. A company car is a car you need to be able to do your job, but as you will also drive home with this car and do the shopping maybe visit grandma to show the car, this use is regarded private use. Private use of a company car is a benefit in kind and a benefit in kind is subject to wage tax. The value for this benefit is set at 25% of the Dutch catalogue value of the company car. Only if you have a car meeting certain green criteria, the percentage can be lower.
I do not use the company car privately, what then?
If you happen to have a much more enjoyable car, or practical car or if you never use a car privately, then why should you pay for the ‘ benefit’? Indeed, you should not. Then you can up front make a request yourself, you being the employee, with the Dutch tax office. The Dutch tax office then states that you need to proof at the end of the year that you indeed drove less than 500 km with a company car for private use during the full year.
Company car administration, checked by the tax office
Have you ever wondered about the camera’s you see on the road? The stand alone rather sophisticated camera’s actually issue speeding tickets if you speed. The others, two in a two lane situation, attached to a lamppost often, are not to check your speeding, but to check you. If you cross the Dutch border with a car you see two above the road. Those are of the tax office. Others are near amusement parks or IKEA type of companies. Situations you are expected to go in the weekend with the company car.
You keep track the full year of the KM driven. That is done by an instructed method and you cannot round of the KM by 10 km, it needs to be more precise. If the tax office asks to hand over the KM administration, they use your license plate number to check in the system for tickets and hit on the camera’s on the road. Those hits are checked in your administration time wise. If there is a mismatch, you have a serious issue.
Company car, no private value, no KM administration – court case
An employee had a company car, asked for the permit not to ad 25% value of the car to his income. At the same time he did not keep track of his KM driven. So he could not proof not to have driven more than 500KM annual with the company car. That implies he will be charged with 25% of the value of the car to his income.
The tax office asked him to provide a KM administration, he could not, hence EUR 12.257 wage tax was charged to him, increased with EUR 4.920 fine for not being compliant. At that time this was the maximum fine possible, a 100% fine.
The employee disagreed and went to court. He was asked to show his KM administration and he indicated he could not. The tax inspector asked this question so frequently, that this employee started to make one for the year 2011, even though that was 2 years ago. He did this with the help of his agenda.
He went back to the court, showed the KM administration and immediately added that there are some discrepancies as he only made the KM administration after the year was finished for two years and because the tax inspector was confronting him with the lack of a KM administration constantly.
The tax office checked this KM administration with the data they had about this car and came to the conclusion that the KM administration was not correct. The tax office insisted on the fine being maintained.
The court asked the tax inspector what would have been the fine if no KM administration was presented. The response was a 25% fine instead of a 100% fine. The reason was that a non existing KM administration cannot contain mistakes or incorrect data, hence a lower fine. The court decided on that response that the fine was being reduced from 100% to 25% as the employee clearly indicated not to have a KM administration and only because the tax office kept on insisting on such a document, he created one. Which was not fully correct, which he already admitted while handing over.
So EUR 12.257 wage tax was due and EUR 1.230 fine. To put this in perspective, EUR 12.257 for 25% of the catalogue value is a EUR 49.028 valued company car. That is a bare BMW 5 series, or a well equipped VW. The tax office can go back max 5 years, so the total amount due could have been EUR 61.285 plus 5 times a EUR 1.230 fine. You can purchase a well equipped car yourself for that amount.
Company car and obligations
If a company car is being granted to you and you do not want to pay the income tax that stands for the private use of this company car, you can apply with the tax office to be exempted from this private use amount. However, the exemption comes with a requirement. The requirement is that you need to be able to proof to the tax office you actually have not driven more with the car for private use than 500 KM per year.
Knowing this requirement, and knowing the tax amount that can be charged to you over a 5 years period, should make you comply with the requirement. You can do this with a simple excel overview, but experience learns that you do start with good intentions, then you forget a couple of months and then it is never done again. Better is to purchase a KM administration box, have it implemented in the car. This box can communicate with your computer and make good solid overviews with which the tax office can work.
To the employee we can only state that it is of extreme importance to comply with the rules. Create proof, proof that meet the checks done by the tax office.
To the employer we would like to state to be fully disclosed by the employee. Disclosed about the permit being asked and the KM administration being kept. An employee with a debt to the tax office of for instance EUR 61.285 excluding fines can become a liability for the company.