Below, we share with you the latest considerations of the State Tax Agency (AEAT) regarding the assignment of mixed-use vehicles to employees.

We are referring to “mixed use” in those cases, very common in the daily operations of companies, in which the company assigns a vehicle to the employee for use both in the performance of their job duties and for personal use outside of working hours.

On this matter, which has been widely debated for a long time, the AEAT has published a notice on its website on July 31, 2023, detailing the administrative criteria regarding the treatment of VAT for this type of vehicle assignment, based on the latest applicable jurisprudence.

We are below summarizing the key conclusions from this notice.

Onerous assignments subject to VAT

According to jurisprudence, vehicle assignments are considered provision of services and, therefore, are subject to VAT when carried out on an onerous basis.

This means that VAT applies when:

  • The employee pays a portion of the vehicle’s use or the corresponding amount is deducted from their salary.
  • The employee has the option to choose the vehicle’s use from different remuneration options.

In these cases, it is considered that there is an economic compensation, and the vehicle assignment is classified as an onerous provision of services subject to VAT.

It is important to note that the fact that the assignment is considered a benefit in kind for the Personal Income Tax (IRPF) does not automatically determine its VAT liability.

Non-taxable free assignments

On the other hand, when the vehicle assignment is free of charge for the employee and its use is entirely voluntary, with no impact on the employee’s remuneration, VAT does not apply for the onerous assignment of the vehicle. This also applies when the employee makes no payments or selections among different benefits offered by the employer regarding vehicle use.

However, as will be explained later, in these cases, it should be examined whether we are dealing with what is technically called “self-consumption of services,” which may also be subject to VAT.

Determination of the Taxable Base

In cases of onerous assignments, the taxable base will coincide with the vehicle’s market value.

If the vehicle is owned by the employer or professional, the taxable base will be the market value or, in the absence of a comparable service provision, the total costs incurred by the employer or professional.

If the vehicle is used under a leasing or rental arrangement, the taxable base is determined by the rental fee adjusted by the percentage of availability for personal use.

It is important to note that availability for personal use is assessed by considering the total annual time that does not coincide with the employees’ working hours.

Possible Self-Consumption of Services

In situations where 100% of the VAT paid on the vehicle acquisition has been deducted, and subsequently the vehicle is gratuitously assigned to employees without any consideration, it is considered an operation similar to a provision of services.

In this case, the employer or professional must determine the taxable base according to the market value of the vehicle, in the same way as described in the case of onerous assignment.

Non-occurrence of Self-Consumption in Specific Cases

Finally, it is important to highlight that self-consumption does not occur in two specific situations:

  1. When the employer or professional has not incurred any VAT on the vehicle acquisition, as in this case, self-consumption is considered not applicable.
  2. If the employer or professional acquired the vehicle with the intention of partially allocating it to the business activity and also gratuitously assigning it to the employee from the time of acquisition, only the percentage of allocation to the activity will be deductible from the incurred VAT, while the rest of the VAT cannot be deducted. Therefore, self-consumption of taxable services resulting from the gratuitous assignment of the vehicle to the employee does not occur, as there is no right to deduction for that percentage.

These clarifications from the AEAT provide a valuable guide for understanding the tax treatment of vehicle assignments to employees and making informed decisions regarding VAT.

If you require more detailed information or personalized advice on this matter, do not hesitate to contact us.

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