With effect from 1 January 2017, the additional tax liability for the private use of a company car or van has been reduced from 25% to 22%. This reduction applies to cars registered on or after 31 December 2016. Cars with a datum efirst tVehicles (DET) registered before 1 January 2017 are subject to the additional tax liability of 25%. This percentage is reduced for (highly) fuel-efficient cars during the first 60 months following the DET. See our factsheet for a detailed explanation of this transitional arrangement.
Discrimination?
It may now be the case that the driver of a brand-new (highly) fuel-inefficient car is required to add an additional tax liability of 22% of the car’s list price to their profit or salary. The driver of an older, fuel-efficient car, on the other hand, faces an additional tax liability of 25%. The question is whether this constitutes unlawful discrimination. On the initiative of the Association of Business Drivers (VZR) has initiated proceedings before the tax court in this regard.
Pro forma objection
In order to be part of the proceedings, a pro forma objection must be lodged in good time. Pro forma objection (notice to preserve rights) means that the grounds for the objection and the reasons for it have not yet been included in the notice of objection.
This is not a test case. Consequently, the Tax and Customs Administration is (for the time being) refusing to suspend the (pro forma) objections pending the tax court’s ruling. The Tax and Customs Administration will ask the person submitting a pro forma objection to provide grounds for the objection. Upon receipt of these grounds, the Tax and Customs Administration will reject the objection. Thereafter, rights can only be safeguarded by bringing an appeal before the court.
Although it has already been established that the Tax and Customs Administration will reject the objection, it is essential that it provides grounds for its decision. In the absence of a statement of reasons (or even a draft thereof), the Tax and Customs Administration will declare the objection inadmissible. As a result, the substantive dispute can no longer be brought before the Tax Court.
Objection to: ?
The additional tax liability for the private use of a company car, in the case of cars driven by employees, applies in the context of the following taxes:
- payroll tax;
- income tax.
Payroll tax is paid monthly or every four weeks. Any objection to the payment of payroll tax must therefore be lodged for each tax period (in some cases, an arrangement may be made with the Tax and Customs Administration whereby a single objection against the payment in the earliest tax period is sufficient). The objection is deemed to have been lodged in time if it is submitted within 6 weeks of the employer paying the payroll tax.
As the employer is responsible for paying payroll tax, it is the employer who must lodge an objection to the payroll tax return. However, the employer generally has no interest in lodging an objection. After all, the payroll tax payable by the employer is borne by the employee, as this tax is deducted from their wages.
The additional tax liability is, of course, included in the income on which the employee pays income tax via their salary. It is therefore, in our view, not necessary to lodge an objection to the payment of payroll tax. The employee can safeguard their rights by lodging a (pro forma) objection to the income tax assessment in which the car allowance is included. This concerns the 2017 income tax return, which must be submitted in 2018. By then, there will likely also be clarity regarding the outcome of the proceedings initiated by the VZR.
Employees who do not wish to take any risks would be well advised to lodge an objection (or have one lodged on their behalf) against the deduction of income tax (via their employer). The Tax and Customs Administration requires a comprehensive set of details. If any of these are missing (even in part), the objection will be declared inadmissible.
This applies to all cars with a DET date prior to 1 January 2017, which have a basic additional tax liability percentage of 25. It also applies to cars for which the 60-month transition period has already expired.
Entrepreneur
An entrepreneur’s profits are not subject to payroll tax. The entrepreneur can therefore only lodge an objection against the income tax assessment (and the Health Insurance Act assessment). This applies to entrepreneurs who run their business as a sole trader, a general partnership (VOF), a professional partnership or a limited partnership (CV). This is because, for tax purposes, a director and major shareholder (DGA) is regarded as an employee. Their salary is therefore subject to payroll tax.