What is “Cash for car”?
“Cash for car”, or the ‘mobility allowance’, was introduced by the law of 30 March 2018. This law has allowed employees with a company car that they can use for private purposes to, under certain conditions, exchange this company car, including any associated advantages (e.g. fuel card, maintenance, winter tyres, etc.), for a cash compensation called a ‘mobility allowance’. Such a ‘mobility allowance’ has enjoyed an advantageous social security and tax treatment.
Up to now, the system has not been very successful. In practice, only 0.065% of company cars have vanished since the “cash for car” system was introduced (source: Acerta).
What preceded the Constitutional Court’s decision
Already at the time of the preparation of the law on “cash for car”, the Council of State highly criticised the draft bill. It gave a negative opinion for a number of reasons that included:
- The “cash for car” system would create a type of discrimination between employees who do not benefit from a ‘mobility allowance’ and whose salary is fully taxed, and employees with a ‘mobility allowance’ who would receive a cash amount that they could freely spend and that would benefit from a favourable tax and social security regime.
- A ‘mobility allowance’ that could be freely spent by the employee would in fact be no different from ordinary pay and would not justify a favourable tax and social security treatment.
- The objective of reducing the number of cars and improving mobility would not be achieved by the “cash for car” system.
However, despite this negative opinion, the government decided to stand firm on this issue and implemented the draft bill after only slightly amending it.
But that amendment was apparently not enough as the Constitutional Court has now confirmed the Council of State’s position.
The Constitutional Court’s decision
Five organisations, comprising 2 trade unions and 3 non-profit climate organisations, challenged the law on “cash for car” before the Constitutional Court on the ground of violation of the general principle and tax principle of equal treatment. They filed an appeal for annulment.
On 23 January 2020, the Constitutional Court ruled in favour of the trade unions and climate organisations and annulled the law based on the following considerations:
- It decided that the “cash for car” measure has led to unequal treatment between employees who do not receive a ‘mobility allowance’ and whose entire salary is subject to social security and tax contributions, and employees who receive a salary plus a ‘mobility allowance’ that they can freely spend and that is subject to a particularly favourable social security and tax regime. According to the Court, the legislator did not provide reasonable justification for this distinction.
- Unlike a company car, the employee can use a ‘mobility allowance’ for any purpose, so that it is in fact no different from ordinary pay and does not justify a favourable tax and social security treatment.
- Moreover, according to the Court, this measure has not guaranteed that the legislature's objective of reducing the number of cars on the road will be achieved. Indeed, since the law has allowed the employee to use the ‘mobility allowance’ freely, the employee could decide to use his/her private car for commuting and to spend the ‘mobility allowance’ on fuel and/or on the purchase of a (smaller) car.
- In addition, an employee who has more than one company car will also receive a ‘mobility allowance’ if he/she only exchanges one of those company cars. As a result, the employee would still be able to drive his/her other company car while at the same time receiving a tax-friendly allowance in cash.
- Finally, the Constitutional Court has also criticised the fact that the amount of the ‘mobility allowance’ is solely based on the company car’s catalogue value, irrespective of the number of kilometres actually driven by the employee.
Consequences of the annulment
The Constitutional Court has annulled the law on “cash for car”. However, to avoid difficulties for employers and employees who have already made use of the ‘mobility allowance’, it has decided to maintain the consequences of the annulled law until the entry into force of any possible new law or until 31 December 2020 at the latest.
The legislator can now decide to either significantly adapt the annulled law on “cash for car” or to only maintain the system of the ‘mobility budget’, i.e. the second alternative for company cars that was introduced in March 2019, against which no appeal has been filed before the Constitutional Court.
What is next?
If the legislator decides not to adapt the annulled law on “cash for car”, then any employers and employees who have already agreed on a “cash for car” allowance should find a solution starting from 1 January 2021 at the latest. Possible options include:
- Switching to the ‘mobility budget’ system;
- To once again offer the employee a company car, fuel card etc.;
- To consider the “cash for car” allowance as salary, subject to normal tax and social security contributions (which might lead to a renegotiation of the employee’s salary package).
To be continued …