EU takes aim at tax breaks for company cars

Paul McVeigh is managing editor at Automotive News Europe.Paul McVeigh is managing editor at Automotive News Europe.
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Automakers face a new threat to new car sales in Europe from EU regulators who are considering ways to reduce tax breaks for company cars.

Company cars represent about half of Europe's car sales. Tax breaks for these cars and fuel represent a subsidy of 54 billion euros and an increase in CO2 emissions from Europe's cars of between 4 percent to 8 percent, according to research commissioned by the EU and conducted by Danish economics consultancy Copenhagen Economics.

The study recommended that company car tax breaks should be scrapped and the European Commission's latest draft transport white paper identifies company car taxation as a problem.

"It's good this massive hidden subsidy to the car and oil industries and to white-collar employees is finally on the table. Europe cannot afford such schemes any more. It should scrap them and lower labor taxes simultaneously so that we have less pollution and more jobs," says Jos Dings, director of the Brussels-based green lobby group, Transport & Environment.

Dings says there is a wide disparity in company car taxes in the various EU nations. Countries such as Germany and Belgium that have low "benefit in kind" taxes on company cars have high fleet sales to businesses.

Tax subsidies distort consumer choice by creating artificially high demand for large and less fuel-efficient vehicles while increasing the number of journeys made, both because the car 'owner' doesn't have to pay, according to green campaigners.

Reform of company car taxation has considerable potential to radically change the behavior of car drivers. In the UK reform in 2002 was accompanied by reduced business distances of 45 percent, according to Open University research.

Dings say automakers normally support measures to scrap taxes, but they are silent on this issue. ACEA, the Brussels-based European automakers lobby group, didn't respond to a request from Automotive News Europe for a comment.

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