This movie started “a long time ago, in a galaxy far, far away”, but it is always astonishing, the temptation of the Portuguese Tax authorities to find ways to entangle the stability of tax laws and wreck any kind of planning regarding the acquisition and use of bikes and car company vehicles.
The last part of this saga was presented on the 2023 budget law, which introduces a surprising autonomous taxation rate of 10% on costs incurred with car vehicles for passengers, exclusively powered by electric energy, in case the acquisition cost exceeds 62.500 Euros (until 2022 these vehicles were not subject to autonomous taxation), which due to the lack of car stock and rising prices is not difficult to overcome.
Also, there were changes in the autonomous taxation rates concerning hybrid plug-in and Compressed Natural Gas (CNG) vehicles, i.e. costs incurred with hybrid plug-in and CNG moved vehicles will now be subject to the same autonomous taxation rates (i.e. 2.5%, 7.5% and 15%), currently, hybrid plug-in are subject to 5%, 10% and 17.5% and CNG are subject to 7.5%, 15% and 27.5%.
When confronted with these changes companies, lawyers, consultants and accountants can only find a contradiction, but please follow my thoughts.
Portuguese corporate income tax has a special feature, rarely seen in other countries, i.e. an autonomous taxation rule. This taxation, created in 2001, seeks to combat tax evasion, particularly by preventing companies from using certain expenses to remunerate employees.
Autonomous taxes are levied on an extensive set of corporate expenses, irrespective of corporate profitability. Indeed, if there is a tax loss, the autonomous tax rates are increased by 10%.
Among these corporate expenses, the following stand out: costs with company car vehicles, entertainment expenses, bonuses and undocumented expenses. Please find below the complete list [1]:
| Expense Items | Rate |
| Non-documented expenses | 50% (70% if taxpayer is CIT exempt) |
| Expenses with passenger vehicles (excluding electric vehicles) with an acquisition cost between an amount below € 25.000 and above € 35.000 | 10% up to 35% |
| Representation expenses | 10% |
| Payments made to individuals or corporate entities resident in blacklisted jurisdictions | 35% (individuals) / 55% (corporate entities) |
| Per diem and travel allowances | 5% |
| Dividends paid to partially or fully Corporate Income Tax exempt entities with a shareholding of less than one year | 23% |
| Expenses incurred regarding compensation paid for the termination of manager or board members’ functions and not related to productivity goals established in the labour agreement. | 35% |
| Amounts exceeding the remuneration to be received by the manager or board member until the term of the labour agreement in case of termination prior to that term. | 35% |
| Bonuses paid to managers or board members corresponding to more than 25% of the yearly wage and exceeding € 27.500 | 35% |
In 2014, there were some relevant changes. For example, the term “mixed car vehicles” was replaced by “goods vehicles mentioned in Article 7.º, paragraph 1.º, subparagraph b) of the Vehicle Tax Code”. In practice, the idea was to subject to autonomous taxation goods vehicles, which were identical to light passenger vehicles.
Hence, under specific characteristics, goods vehicles may or not be subject to autonomous taxation. This means that vehicles taxed at a reduced or intermediate rate of the Vehicle Tax Code (ISV), as well as three or four seats’ vehicles, with “open body” or “closed body”, even if taxed at the standard rate, are not subject to autonomous taxation. Recapping, the below vehicles are not subject to autonomous taxation:
– light goods vehicles with up to three seats;
– light goods vehicles with more than three seats, with or without a crate; and
– light goods with a gross weight of 3.500Kg, a driving axle (4×2) with an open body or, if the body is closed, the driver’s cab and passengers are not integrated into the bodywork.
To encourage environmentally friendly practices, it was also established that companies which acquire plug-in hybrid vehicles, electric vehicles, CNG or Liquefied Petroleum Gas (LPG) vehicles have reduced rates or even a total exemption.
In summary, over the last years, under the mantra of the energy transition, the political message promoted the acquisition of electric car vehicles, especially, by companies that, due to the size of their fleets, have a significant role.
However – and there is always a “but” on tax – after all these years, there is not yet any kind of harmonization regarding the different concept types of vehicles.
The relevant laws on this question are Corporate Income Tax (IRC), Value Added Tax (IVA), Vehicle Tax Code (ISV) and also the Road Traffic Code. To show the complexity and the need to reduce red tape costs, let us start checking the definitions for the types of vehicles in each one.
On the Road Traffic Code, there are (at least) 8 types of classifications: light cars for passengers and goods; heavy cars for passengers and goods; motorbikes or motorcycles; agriculture vehicles; other motor vehicles and trailers. Using a similar rationale for the other codes, we found on IRC (at least) 17 types of classifications, on ISV (at least) 19 types of classifications and on IVA (at least) 9 types of classifications, with one special feature that on this code it was used a different definition for vehicles, i.e. tourism vehicles (stating the tax authorities, that this is “any vehicle with more than three seats”, even if it is a good vehicle).
After considering all these specifics, we still have to replicate them for each type of energy power, i.e. petrol, diesel, LNG, CNG, petrol hybrid plug-in, diesel hybrid plug-in and electric vehicles. By the end of this exercise, we reach around 200 types of different classifications (at this stage you are certainly starting to agree that things could be simpler).
Another harsh aspect of companies related to this theme, which has been in discussion over the last decade, relates to the dispute on autonomous tax rules by companies based on the nature of their activity.
Companies start appealing to courts to claim that, in some specific cases, it is impossible to give personal usage to bikes and company car vehicles and that these facts can be indeed proven. Examples of these cases are the bikes used by post office staff (example: CTT), vehicles used by journalists in the context of travel associated with reports (example: RTP) or vehicles used exclusively for the delivery of orders (example: Telepizza).
After some contradictory decisions at the arbitration court’s level, the Supreme Administrative Court [2] decided that the legal rules establishing autonomous taxation of company expenses with passenger car vehicles, goods vehicles, motorbikes or motorcycles “constitute tax incidence rules that do not consecrate any presumption that can be proven to the contrary”. This decision has put an end (at least for now) to the discussion, since in fact, it may now be more clear to say that we are, after all, not in the face of a genuine form of tax expenses, but indeed a way to submit to Corporate Income Tax these expenses, which ultimately aims to tax income (but let us focus on our main discussion).
At a glance, for the acquisition (buying, leasing or renting) and utilization (using any kind of power energy), there are more than 200 different types of situations, each one with different impacts on IRC and VAT. Besides this, the Portuguese Tax Authorities consider that goods vehicles with more than 3 seats (and there are popular models used especially by construction workers) are subject to autonomous taxation and the cost incurred with these vehicles are not VAT deductible and even if you use, for example, a motorbike to deliver pizzas (which is the most efficient and time-saving way) companies are also penalized? I don’t know if it is only me, but if this is not an obsession…
[1] AICEP (Investor’s Guide – Fiscal System – Main Taxes in Portugal (portugalglobal.pt))
[2] Acórdão n.º 1/2021, Processo n.º 21/20.7BALSB
Nuno Jacinto
December 2022