1% rule falls? How to convince the tax office
Background: Company vehicles and private use – what case law says
As soon as a vehicle is part of the business assets of a sole proprietorship or freelancer and is theoretically available for private journeys, the tax office automatically assumes that it is used for private purposes. This is taxed according to the familiar 1% rule: 1% of the gross list price is added to income each month as a non-cash benefit.
This presumption is based on the so-called prima facie evidence: according to general life experience, company vehicles are also used privately if they are available outside of working hours. This presumption can only be rebutted in exceptional cases, for example in the case of a pure workshop vehicle or a vehicle that is used exclusively by one employee.
But when exactly is it possible to shake the prima facie evidence? The Federal Fiscal Court (BFH) shed light on precisely this question in its ruling from 22.10.2024 (case no. VIII R 12/21).
The case before the BFH: Lamborghini as a company car
A test expert had leased a Lamborghini Aventador for a hefty €5,473.03 per month and a base price of €279,831.93 net. In addition to this vehicle, he also owned other vehicles, both as business and private assets. The Lamborghini was provided with an advertising foil (“Prüfsachverständiger …”) and was intended to serve as part of his public image. However, the tax office did not accept the full deduction of business expenses and assumed that the vehicle was used for private purposes, as it was theoretically available outside of working hours.
The auditor argued that the Lamborghini had only been used for business purposes, primarily as a representative marketing tool. Nevertheless, the tax office rejected the input tax deduction and the full recognition of the business expenses, citing prima facie evidence.
The BFH decision: When the prima facie evidence falls
The BFH clarified: It is not necessary to provide absolute proof that the vehicle was never used privately. However, the taxpayer must present and prove specific circumstances that give rise to serious doubts about typical private use. This is called shattering the prima facie evidence.
Simply stating that other vehicles are available as private assets is generally not sufficient. The situation is different if comparable vehicles (similar in status and utility value) are used privately. The smaller the differences between the private and company vehicles, the more likely it is that prima facie evidence can be dropped.
In the case of the Lamborghini, the BFH examined whether the vehicle actually served an objective business purpose. The tax court had previously doubted whether a Lamborghini fulfilled a comprehensible business purpose for a tax expert. However, the BFH pointed out that representative purposes must also be taken into account – especially if the taxpayer uses the vehicle specifically for certain customer groups. However, the taxpayer must be able to prove this.
The BFH also emphasized that the appropriateness of the vehicle expenses also plays a role. This includes factors such as the size of the company, turnover, profit and the significance of the entertainment expenses for the success of the business.
What does this mean in practice?
The prima facie evidence applies in principle: vehicles held as business assets are used privately – unless you can demonstrate circumstances that disprove this.
Comparable vehicles in private ownership can help to shake the prima facie evidence. However, a simple second car is not sufficient if the status or utility value differs greatly.
Particularly in the case of high-priced luxury vehicles (such as a Lamborghini), the tax office strictly examines whether business use is verifiable. Representation can be an argument, but it must be documented and justified.
Recommendation for action:
- Document use: Anyone using a conspicuous vehicle purely for business purposes should document this by means of logbooks, customer visits or marketing measures.
- Justify representation: Explain why a particular vehicle promotes the company’s success – for example through targeted customer acquisition or image cultivation.
- Check the appropriateness of the expenses: Are the costs and benefits for the vehicle in relation to the overall operation?
You use a special vehicle for business and are unsure how to rebut the prima facie evidence?
Get advice from PepperPapers – before the tax office strikes with the 1% rule!
