LeasePlan commentary on the 2020 National Budget: "Proceed with your business development as planned"
At LeasePlan, we have looked into the proposed legislation, performing an initial assessment into the impacts should it be adopted in its current form.
We strongly emphasise that our comments are based on the proposed legislation and its consequences in that form, although these are subject to change if there are any alterations before final approval. During the hearings, we expect both general and technical questions to be asked.
Taxation of environmentally friendly cars
The government is proposing a DKK 40,000 deduction on the tax value of electric cars and plug-in hybrids, which would result in a DKK 3,333 monthly tax saving. This is supposed to take the form of a nine month window from April 1 to December 31, 2020.
This proposal also takes into account environmentally friendly cars already available to employees.
In order to compare the effect on different models, the proposed legislation includes the following example:
Value of an electric car: DKK 500,000 Annual tax value: 300,000 * 25% + 200.000 * 20 % = DKK 115,000 Proposed monthly reduction to tax value: 40.000 DKK / 12 = DKK 3,333
Monthly taxation in the proposed period from April 1 to December 31, 2020 = 115,000 / 12 – 3,333 = 6,250 DKK For an employee who pays the highest tax (54%), this will result in a 1,800 DKK monthly saving after taxes in this period.
Since the minimum taxation level is DKK 160,000 there will be no negative taxation.
Registration fee on environmentally friendly cars
The government has proposed to cancel the planned registration fee increase in 2020. As a result, the 2020 fee will remain at the same level as 2019. It has also proposed that the planned tax-free allowance raise is cancelled in order to keep it on the same level as 2019.
If the proposed legislation is adopted in its current form, registration fees for environmentally friendly cars in 2020 will be determined based on the same procedures as 2019.
If the proposed legislation is adopted in its current form, it will have a positive effect on the individual employee’s company car taxation if the employee has access to an environmentally friendly car.
Since the proposed legislation favours vehicles that are already registered, we do not recommend that companies change their fleet composition in terms of increasing numbers of environmentally friendly cars.
However, if your company plans to invest in an environmentally friendly fleet, this proposal presents an opportunity to experience positive results in 2020 due to the proposed cancellation of the increase to registration fees and the fact that the planned increases in 2021 will remain unchanged and because of monthly taxation savings for employees.
Overall, the proposed legislation will benefit companies that invest in environmentally friendly cars. If you would like specific guidance about environmentally friendly fleets, LeasePlan is happy to assist you.
Tightening of taxation of company cars
The government also proposes the tightening of company car taxation rules so the tax base follows the recalculation according to REGAL § 9a. If the proposed legislation is adopted in its current form, the tax base will be recalculated on the technical ‘new car’ that must be performed no later than four months after the first registration.
The proposal also states that the recalculated car price will become effective at the time of the recalculation, so adjustments will not have a retroactive effect.
There will not be any changes in the taxation of cars registered for the first time prior to 1st February or cars available to the employee before 1st February. Therefore, cars available to employees before 1st February are included. This is also the case for cars already registered and available to employees after 1st February.
LeasePlan predicts a number of general and operational challenges if the proposed legislation is adopted as-is. At this point, it is still too early to draw any final conclusions in terms of the effect that the proposed legislation could have.
The overall objective of the proposed legislation is to secure the part of the state’s income on taxation of company cars that the state loses when leasing companies buy cars at a lower price than regular in retail trade. If the proposal is adopted in its present form, it could lead to an increase in company car taxation which will follow the recalculation of the vehicle registration fee moving forward.
The actual effect will be different depending on the model. However, the effect will typically be larger for high-value models. A 5-10% tax value increase – depending on car – is therefore not unlikely.
Due to the uncertainty around the practical handling of the proposed legislation, it is still too early to draw any final conclusions in terms of the effects. If the proposed legislation is adopted in its current form, there will be a change in taxation value of all cars provided to employees after 1st February.
As recalculation is already being performed according to the Registration Tax Act, the proposed legislation will not have any effect on companies’ monthly leasing payments, hence only affecting taxation for the employees with access to a company car after 1st February.
For companies that have already ordered or are planning to order cars to be delivered in 2020, the proposed legislation in its current form will imply that cars registered after 1st February will need to have their taxation value checked while being recalculated according to the Registration Tax Act. The proposal will result in a higher taxation of cars registered after 1st February 2020 than a similar car registered before this date.
Unfortunately, at LeasePlan we often experience a slow-down in the leasing market when proposals that affect vehicle registration fees and taxation appear, primarily because companies and drivers are uncertain about the effects. At the same time, in our experience, the market can counterbalance the slow-down just as quickly as proposals become fully adopted and the effects are better known.
There is also a risk that the proposed legislation could slow down business development in an unfavourable way and result in a decrease to investment.
Our recommendation therefore, is that our partners proceed with their investments as planned. Once the proposed legislation is adopted in full and we know the effects, we can start analysing the possible changes in terms of fleet composition and future investment.
At LeasePlan we monitor the situation closely, and as soon as we know more about the impact of the proposed legislation, we will of course reach out to all of our customers.