Data gap on company cars – tax benefits with consequences?

The so-called company car privilege is a controversial topic, as the tax regulation raises many questions of fairness and environmental impact. However, there is still a lack of reliable figures for suitable reform proposals. In a new research project commissioned by the German Federal Environment Agency (UBA), a team from ISOE and RWI – Leibniz Institute for Economic Research (lead) is collecting empirical data on the ecological, social, and tax effects of the company car regulation in Germany.

For many, a company car is a financial gain. It is considered a kind of salary bonus, with the company saving on taxes, social security and pension contributions compared to a regular salary increase. This means that a company car represents a so-called monetary benefit that employees must pay tax on. Depending on their earnings, an employer's company car can dwarf the value of an employee’s own car.

And this is precisely what discussions have been revolving around for years: Is this socially just? Who exactly benefits from this fiscal privilege and to what financial extent? How much does company car taxation cost the state and taxpayers? There is also debate about how tax rules affect the climate. Does the company car privilege harm the environment? Critics argue that the tax privilege promotes environmentally harmful mobility behavior that increases CO2 and other air pollutants such as nitrogen oxides and particulate matter. They are calling for reform on ecological grounds. 

Reform proposals for an ecologically, socially, and fiscally equitable practice

But what could a reform of the current practice look like? Reliable figures are needed to answer these questions. However, there is currently a lack of data on the actual scale of the tax implications, ecological consequences, and social effects. Under the leadership of the RWI – Leibniz Institute for Economic Research, a research team is now collecting data to empirically illustrate these effects.

Using a methodological approach that combines qualitative and quantitative surveys and modeling techniques, the researchers aim to fill the data gaps on professional and private use of company cars and on the actual amount of the tax advantage. They are also determining the impact of company car regulations on mobility behavior and the consequences of actual usage practices for the environment and social justice.

In order to gain deeper insights into everyday use and perceptions of company cars, ISOE is working with focus groups. The project team will then conduct a nationwide quantitative survey. Based on these empirical results, RWI will simulate realistic case scenarios to quantify the fiscal effects, social distribution effects, and ecological impacts of the current company car taxation system. On this basis, the research team jointly develops reform options that take equal account of ecological, social, and fiscal policy objectives.