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Austria - EHS Candidate for Reform

Flat rate taxation on company cars for private use

The objective of the flat rate taxation rate on company cars for private use by employees is to support the use of company cars as a non-cash or in-kind benefit. The main beneficiaries are employees of companies where the company car policy allows car use for private purposes. Similar company car subsidies exist in Denmark, Germany, Italy, Luxembourg, the Netherlands and Slovakia.

In 2020, two-thirds of all new cars in Austria were registered to companies or other legal entities. Most of them were either petrol or diesel cars, which demonstrates the scale of the problem. There are no up-to-date estimates of the budget impact of this subsidy, but an OECD analysis from 2014 showed that the value of the subsidy in 2012 was EUR 558 million.

Traffic jam
© Alexander Popov / Unsplash

The environmental impacts caused by the subsidy are growing CO2 emissions due to higher fossil fuel consumption, use of resources required to produce new cars, and increased amount of waste. Resources are also needed for building, maintaining and expanding road infrastructure to accommodate the rising number of vehicles. As company cars have 5% larger engines on average and cars emit about 15 million tons of CO2 per year in Austria, a reduction of 5% of emissions for two-thirds of cars would reduce CO2 emissions by 500,000 tons per annum.

Since 2016, the tax reform by the Austrian government has revised the size of the benefit depending on the emissions of the car. The tax varies from no tax for zero-emission cars and cars that are used very little privately to 2% for cars that cannot keep within the specific emission limit. The permissible emission limit for this subsidy has also been gradually reduced to limit tax benefits and promote the use of low-emission cars. In 2020, the Austrian government programme for 2020-2024 announced a reform of the company car subsidy as part of its more extensive Social Environmental Tax Reform, which is yet to be implemented. Two options are available to reform the subsidy. One is to increase emission limits to an actual cost level for fuel cars so that only very low or zero-emissions cars receive funding. The second option is to ensure that companies cannot subsidise fossil fuels by recording all fuel costs as an in-kind benefit on the employee’s tax bill.

More information on the flat rate taxation rate on company cars for private use and other candidates for reform in Austria and other Member States can be found in the country case studies and factsheets compilation.