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Denmark – EHS Candidate for Reform

Company car taxation

The tax reduction aims to support the utilisation of company cars for private purposes as an in-kind benefit. The monetary value of the benefit is significantly lower than the actual cost for the company. It is calculated by multiplying the list price of the car by 20% or 25%, depending on the price category, and adding an environmental surcharge based on CO2 emissions. The overall tax exemption is worth about a fifth of the car value. Even with the subsidy, owning a car in Denmark remains very expensive as private and corporate owners pay significant registration fees. Similar subsidies exist in Austria, Belgium, Germany, Italy, Luxembourg, the Netherlands, Poland and Slovakia.

© Victor Sánchez Berruezo / Unsplash

The subsidy incentivises the use of company cars for private purposes but also encourages choosing lower emission vehicles due to environmental fees. There are no recent estimations of the budget impact of the subsidy, but the foregone government revenue in 2012 was EUR 285 million. The number of newly registered company cars increased from 70,000 in 2012 to 100,000 in 2018. So, the value of the subsidy has also been rising.

The environmental impacts caused by the subsidy are increased GHG emissions, air pollution and the use of resources. Company cars are using about 5.6% more fuel than private cars. So, if the subsidy were abolished, it would reduce CO2 emissions by 230,000 tonnes per year.

Vehicle taxation has recently been reformed in Denmark. The trends in vehicle taxation and the support for softer mobility options or public transport show a will to support clean mobility and encourage further use of these options in the coming years. These trends are seen in the Danish National Energy and Climate Plan, which sets out an ambitious target to reduce greenhouse gases by 70% by 2030 compared to 1990 levels and end sales of all new diesel and petrol cars from 2030. Due to the recent subsidy reform, company car tax rates will change progressively in the following years. The lower tax rate for more expensive cars will be aligned, and the environmental fee will increase. This should reduce the incentive to opt for high-emission cars. The subsidy could be further reformed by omitting high emission cars and fuel costs from the scope of the scheme.

More information on company car taxation and other candidates for reform in Denmark and other Member States can be found in the country case studies and factsheets compilation.