Cars for business and personal use – regulatory novelties

The European Green Deal, i.e. the strategic initiative launched by the EU in 2019 with the primary objective of achieving climate neutrality by 2050 through the adoption of a series of social, environmental, economic and political measures aimed at preserving the health, sustainability and prosperity of our planet, has recently prompted the Italian legislator to intervene in various economic-social sectors introducing norms aimed at promoting ecological transition processes. Besides its impact on our habits and lifestyle as individuals, the energy and climate transition inevitably involves the main economic players: businesses.

Being regarded as “sustainable” is nowadays crucial to being competitive in the market. Clients now favour sustainability, and consumers are increasingly aware of the environmental impact of products’ manufacturing processes and transportation. Having a green certification can be a plus to increase market appreciation. Within this scenario, this article will analyse in detail the impact of the “green” measures introduced in the Italian legislation on corporate car fleets. Besides being green in terms of mere corporate image, when choosing their company car fleet, companies must now consider the penalties introduced in the Italian law with reference to internal combustion engine cars granted to employees for business and personal use. The granting of cars for business and personal use to employees - especially to those holding managerial or executive roles or appointed as directors - is common practice among companies. Additionally, cars are granted when instrumental to carrying out the employees’ working activity, as for example in case of sales staff.

However, as the granting of cars for business and personal use is a fringe benefit for the employees, it represents a cost for companies which, as employers, are required to pay social security contributions for this form of remuneration in kind. Therefore, the higher the value of the fringe benefit, the higher the cost borne by the company. A first step in a greener direction was the introduction of new provisions with Budget Law 2020, effective from July 2020, namely a different method to quantify cars granted as fringe benefits using ACI (Italian Automobile Club) tables. Although the 15,000 km reference distance travelled per year remained unchanged for the purposes of calculating the contribution in kind, the standard 30% rate was substituted with different increasing and progressive percentages, which penalise cars with higher CO2 emissions. For example, a favourable 25% taxation was introduced for CO2 emissions up to 60g/km, whereas a more penalising 60% tax rate applies to emissions exceeding 190g/km. In a business scenario where attention to corporate costs is paramount and a crucial factor for the management to consider, having a sustainable car fleet is, if not vital, at least no longer negligible for reducing corporate costs. It should also be noted that employees are taxed for receiving fringe benefits, both at a fiscal and social security level, as they constitute remuneration in kind. Consequently, as the value of the remuneration in kind increases, the employees’ net pay decreases in inverse proportion. Another aspect to be necessarily considered by companies is their people’s satisfaction, especially those in management positions.

With Budget Law 2025, the granting of cars for business and personal use underwent an even greater shift towards “green” vehicles, with the introduction of a clear distinction between internal combustion engines and electric engines, effective from 2025. The amount of the remuneration in kind is no longer determined based on CO2 emission levels, but rather on the vehicle power supply. To vehicles powered exclusively by electric batteries a 10% rate applies, still based on the 15,000 km reference distance travelled per year and calculated on the operating cost per kilometre as indicated in the ACI tables. Plug-in electric vehicles also qualify for a reduced 20% tax rate.

Other categories of cars that do not fall into the two previous categories (combustion engines or non-plug-in hybrids) are instead penalised with a 50% tax rate. It is therefore crucial to make ecological choices if labour costs are to be kept down, also in the light of the recent clarifications provided by the Italian Revenue Office on electric charges, as analysed in the next section of this issue of TopHic. Furthermore, the matter has been repeatedly addressed in Revenue Office circular letters due to interpretative doubts arising as a result of unclear norms that have been introduced over time, generating widespread uncertainty.

Anyway, the conclusions reached by the Revenue Office have not always been shared by tax experts, especially as concerns the indications provided on the application, in certain specific situations, of the normal value of the asset to determine the taxable fringe benefit. There are various parameters to consider for a correct determination of the remuneration in kind, from the date of registration of the vehicle to the date of signing the contract with the employee, from the date of order to the date of actual assignment of the vehicle. A decision that might be considered a well thought-out one, such as reassigning a car from the company fleet to another employee, must necessarily be discussed with professionals, as it may conceal critical issues in terms of taxation depending on the vehicle's fuel type.

Further critical issues may arise, for example - as specifically analysed in the “Expert’s opinion” section of this issue of TopHic - when company cars are equipped with optional extras, as is often the case when employees make specific requests that are accepted by the company. In short, there are many critical aspects that can impact taxation and corporate costs. There have been countless circular letters, resolutions and responses to requests for a ruling by the Revenue Office in recent years, which also address the issue of tax deductibility for corporate income purposes, which varies depending on the type of vehicle assignment within the company. But the need to keep track of corporate costs remains the same, and the support of professionals plays a key role to resolve doubts, draw up spending budgets, respond to specific needs and, above all, enable companies to make informed decisions with a view to a mutual satisfaction of both the company and its employees, while simultaneously balancing a sustainability model that can no longer be postponed and which consolidates and strengthens the company's brand on the one hand, but also requires the ability to navigate an increasingly complex regulatory system on the other hand.