The use of company vehicles is a common practice in many organizations, but both employers and employees should be aware of the tax and labour implications involved. With the publication of Supreme Court Resolution 131/2024, clear guidelines have been introduced that mainly affect the mixed use of these vehicles.
The Supreme Court, in line with the European Court of Justice’s criteria, has considered that in the provision of company vehicles used 50% for business purposes, as per the presumption established in Article 95.3.2 of the Spanish VAT Law (LIVA), the remaining 50% of private use is not considered paid by the employee if there is no evidence of compensation, salary reduction, or waiver of rights in favor of the employer. Therefore, this portion of the provision cannot be classified as a paid service, but rather as a free service.
In other words, when the employee does not make any payment, nor forgoes part of their compensation as a trade-off, and the right to use the vehicle is not tied to the forfeiture of other benefits, it does not constitute a paid service. As a result, it is not subject to VAT, and no VAT charge needs to be passed on to the employee.
Regardless of the fact that as a free provision, VAT is not applied, when a company car is used for personal purposes in addition to professional ones, it is considered a benefit in kind. This means its value must be included in the employee’s taxable base for both tax purposes and Social Security contributions.
Supreme Court Resolution 131/2024 establishes the 50% presumption, meaning that unless proven otherwise, it is assumed that the vehicle’s use is equally distributed between professional and personal purposes. This results in 50% of the vehicle’s use being considered a benefit in kind. However, this presumption does not apply to employees whose use of the vehicle is exclusively work-related, such as sales representatives, who can reliably prove that the vehicle is used solely for their professional duties. As a result, they are exempt from the 50% presumption.
In these cases, it is crucial for the company to rigorously document the vehicle’s usage with detailed records that verify its professional use, such as travel logs, garage parking systems (with sign-in), or fleet management systems. Such evidence can prevent the vehicle from being considered a benefit in kind and, consequently, avoid additional tax burdens. The key to exempting these employees from the presumption is the ability to prove exclusive use for work-related activities.
To determine the value of the vehicle as compensation in kind, the following distinctions apply:
- If the vehicle is owned by the employer: the value will be 20% annually of the vehicle’s purchase cost to the employer, including any expenses and taxes related to the transaction
- If the vehicle is not owned by the employer: the value shall be 20% annually of the market value, including any expenses and taxes related to the acquisition, as if the vehicle were new.
These valuations can be subject to a reduction of up to 30%, as indicated in Article 48 bis of the Personal Income Tax Regulation (Royal Decree 439/2007).
By combining the vehicle’s valuation with the percentage of personal use, the value of the compensation in kind is calculated for inclusion in the employee’s payroll.
