A study by Transport & Environment reveals that France could recover up to €4 billion by reforming tax advantages on company cars, which numbered 2.1 million at the end of 2023, with 1.2 million available for personal use. The government plans to adjust tax rates for combustion vehicles to promote electric models, potentially increasing revenue by €3.1 billion. The report highlights the disparity in corporate car benefits and advocates for policies to accelerate the electrification of France’s vehicle fleet.
As of late 2023, France has approximately 2.1 million company cars, with around 1.2 million of those available for private use. These vehicles offer a significant tax advantage, and if a reform is enacted, the government could potentially generate up to 4 billion euros. This figure comes from a recent study by Transport & Environment, which focuses on the transition to greener car options. The study suggests that if these funds were allocated toward social leasing at a cost of 100 euros per month, over half a million residents could access affordable electric vehicles for a duration of three years.
Currently, there is a proposal for a reform aimed at reducing the tax benefits associated with combustion engine company cars. According to sources close to Budget Minister Laurent Saint-Martin, discussions are ongoing, and the final reform may yield lower revenues than the aforementioned 4 billion euros, as efforts will primarily focus on a segment benefiting from tax advantages related to CO2 emissions.
Understanding the Dual Benefits of Company Cars
Company vehicles come with notable perks, primarily depreciation. Léo Larivière from Transport & Environment explains that companies can deduct the purchase costs of these vehicles from their expenses, thereby lowering their corporate tax. This results in an estimated revenue loss of 800 million euros for the government.
Additionally, employees who are provided with company cars enjoy a benefit-in-kind. Larivière points out that these vehicles can be used for personal errands, like grocery shopping or family trips, and are considered a substitution for salary by Urssaf. Consequently, they are reported on payslips and taxed through both employee and employer contributions, as well as income tax.
To simplify the taxation of vehicle use, a 2002 decree established flat rates:
- For company-owned cars: 9% if the company doesn’t cover fuel costs; 12% if it does.
- For leased company vehicles: 30% without fuel, 40% with fuel provided.
Impact on State Revenues and Social Security
These flat rates, which are intended to represent actual employer expenses, often underestimate the costs incurred from the private use of these cars. Larivière notes that in many cases, the use is almost entirely personal.
The government intends to amend these percentages, particularly for thermal vehicles – both diesel and gasoline. However, no changes will be made to electric vehicles to promote their adoption. Transport & Environment estimates that if the taxes were increased to 18% and 24% for purchased thermal vehicles, and 50% and 60% for leased ones, the state could reclaim approximately 3.1 billion euros through income tax, and Social Security could recover 900 million euros through enhanced contributions.
Addressing Company Cars Classified as Salary Supplements
According to Transport & Environment, the proposed adjustments would apply to all vehicle types, while electric cars would maintain their current tax benefits. The organization highlights that nearly 20% of company cars serve as what are known as “statutory” vehicles, written into executive contracts as salary supplements. Larivière raises the question of whether this tax advantage is justified when these cars are effectively personal vehicles. This situation gives undue preference to executives, who often favor a company car with tax benefits over direct salary increases.
The study reveals that the total loss in revenue reaches 3.96 billion euros in 2023, which is comparable to aiming for savings from the government’s pension reform initiative.
Moreover, this tax advantage also extends to cars manufactured abroad. For example, drivers of a gasoline-powered BMW X3 assembled in the USA are set to enjoy a tax benefit worth 23,200 euros in 2023, highlighting the disparity in support for domestic production versus incentives for foreign-made vehicles.
Encouraging Electric Vehicle Adoption
Transport & Environment argues that the tax benefits currently available for thermal and hybrid vehicles serve as an indirect subsidy for fossil fuels. This undermines the intended tax signals aimed at encouraging companies to transition towards electric vehicles.
A reduction or reevaluation of these benefits would incentivize businesses to invest in electric cars, facilitating a transition to greener fleets. Despite existing legislation mandating 3,500 large companies to implement electric vehicle quotas, France remains behind compared to other nations. In the first half of 2024, merely 11% of new company cars in France were electric, in stark contrast to higher percentages in countries like Belgium and Denmark.
In both the UK and Belgium, reforms related to company car benefits have significantly boosted the acquisition of electric vehicles. Notably, Belgium has ceased allowing deductions for company