New Memo of the Spanish Tax Authority on Company Cars

Published on 2 October 2023

The mixed use of company cars by employees, i.e. the use for both professional and private purposes, has been a constant source of conflict between companies and the Spanish Tax Authority (the “AEAT”).

In an attempt to clarify certain concepts and thereby reduce the number of disputes, the AEAT has issued a “Tax Memo” which contains a compilation of the case law of the Spanish courts and the approach taken by the AEAT.

A link to the Tax Memo (in Spanish) can be found at the end of this article. We consider it worthwhile for companies to familiarise themselves with it, since the application of the criteria that it contains should govern their remuneration policies for employees and managers, regardless of the size of the company’s fleet.

The Tax Memo contains three main points. Firstly, it is necessary to determine whether the transfer of the vehicle takes place for consideration. If so, the transaction would be subject to VAT and an invoice would have to be issued. The transfer would be deemed to have been for consideration if, for example, an amount were deducted from the employee’s salary for the use of the car or if the employee chose the use of the company vehicle from among various options (flexible remuneration).

Secondly, the deductibility of the VAT paid by the company in the acquisition, lease or transfer of the vehicle will depend on the existence of consideration as outlined above and the degree to which the car is used for private or professional purposes. The important point here is whether consideration exists, as many consequences in terms of VAT flow from this. Accordingly, the financial aspect of the contractually agreed use of the company car is a fundamental element which we recommend paying special attention to when negotiating employment contracts or implementing remuneration policies.

Finally, in certain cases the legal concept of self-supply of goods and services must also be examined. This occurs when the company has deducted the VAT paid on the acquisition of the vehicle and, subsequently, a transfer to an employee took place without consideration as indicated above. In this case, even if the transfer were “free of charge”, the transaction would be treated as the supply of services subject to VAT.

As can be seen, the issues are not as straightforward as one might think and companies are advised to analyse them carefully in order to avoid unnecessary tax costs and to correctly define their remuneration policy.