The Federal Department of Finance (FDF) has amended the Professional Costs Ordinance for Direct Federal Tax and increased the monthly flat rate for private use of a company car to 0.9% of the vehicle purchase price. The flat rate now also includes travel costs to the place of work. This means that owners of company cars no longer have to make the previously tedious declaration in their tax return of income from the use of the company car for commuting to work. Companies that provide their employees with company cars will also benefit from a reduction in the previously excessive administrative burden. The corresponding amendment to the ordinance will come into force on January 1, 2022. The cantons are free to adopt these new rules for cantonal taxes as well. It can be assumed that they will.
1. Applicable practice
Previously, the flat rate for the private use of a company car - excluding commuting costs - was 0.8% per month (9.6% p.a.). This corresponded to the non-cash benefit accruing to employees. Since January 1, 2016, the travel costs to the place of work (excluding the field service portion) had to be declared as income in the tax return at 70 centimes per kilometer. Of this, up to a maximum of 3,000 Swiss Francs could in turn be deducted as professional expenses for direct federal tax, while the cantons allowed maximum deductible amounts under cantonal law or unlimited deductions.
2. New regulation
The Professional Costs Ordinance for Direct Federal Tax now stipulates that the private use of the company car - including commuting costs - can be taxed at 0.9% (10.8% p.a.) of the vehicle purchase price per month instead of 0.8% as before. This is intended to compensate for the private use of the company car and also for the commuting costs assumed by the company, which means that an actual calculation of the commuting costs is no longer necessary. In return, the offsetting for the commute to work and the deduction of travel costs for direct federal tax will be abolished. In addition, companies will no longer be required to declare the proportion of field work on the salary statement. The new rules also apply to the calculation of taxable income for social insurance and to the calculation of the private use share for VAT.
Despite the change, however, it remains possible to account for effective private use with a driver's logbook and to claim the travel expense deduction.
3. Harmonization required
Formally, the amendment to the Professional Costs Ordinance only applies to direct federal tax. Thus, the cantons can decide autonomously how they take the increased lump sum into account for cantonal taxes. However, the salary statement and the instructions for filling it also apply to cantonal taxes. In order to ensure that the uniform salary statement continues to exist and that there is no additional administrative burden for the companies, it is necessary that the increase in the private usage share and the associated simplifications are also adopted for the cantonal taxes. In the interest of a uniform salary statement, we assume that the 0.9% will also be adopted by the cantons. However, it remains to be seen what will happen in practice. In response to our inquiry, the Zurich tax administration has already announced that it intends to adopt the simplification. Other cantons that have been approached are also leaning towards adopting the practice, but do not yet want to commit themselves.
According to the FDF, the cantons that have an unlimited deduction for travel expenses or a deduction for travel expenses in excess of 3,000 Swiss Francs would see slight additional revenue if the proposal were adopted. Currently, the majority of cantons have a travel expense deduction that is greater than the maximum possible deduction of 3,000 Swiss Francs for direct federal tax.
4. Effects of the change
The main purpose of the new regulation is to reduce the administrative burden for both companies and employees. This is achieved with the new regulation, since on the one hand, employees do not have to include any additional information on commuting expenses in their tax return and, on the other hand, companies no longer have to declare any field work percentages. However, social security and value-added tax levies will rise moderately because the increased private usage share will also have an impact here.
If the flat rate is chosen, this leads to a direct federal tax reduction for all those owners of company cars who have a long commute to work. Owners of company cars with short commutes would be better off choosing the effective amount. However, the administrative effort to keep a complete record (private and business trips) in the required logbook will often be prohibitively high, so that the flat rate will be the more practicable solution for most employees.
We welcome the simplifications, as the effort for companies was considerable, especially for field staff. It is to be hoped that all cantons will adopt the amendment to the ordinance so that all companies as well as all owners of company cars can make use of it.