Spreading of special leasing payments for total car costs on an accrual basis

An employee’s actual expenses for business trips taken in a private car, other than trips between the employee’s home and his or her primary workplace or trips home to visit family, can be determined based on a kilometer rate calculated from the total cost of the car for a twelve-month period and the annual mileage (section 9 (1) sentence 3 no. 4a of the German Income Tax Act (EStG) in conjunction with R 9.5 of the German Income Tax Regulations (LStR)). Instead of the actual expenses, such travel costs can be assessed at the flat-rate kilometer rates in accordance with section 5 of the German Federal Travel Expenses Act. If a private car is used, the so-called mileage allowance is EUR 0.30/km. Against this background, the German Federal Fiscal Court (BFH) had to clarify in its ruling of November 21, 2024 (case reference VI R 9/22) how a special leasing payment made by an employee is to be taken into account when determining the actual expenses for corresponding business trips.

In the case in dispute, a field representative entered into a leasing contract in December 2018, making a special leasing payment and purchasing vehicle accessories such as a set of tires. He included the full amount of these purchases in the relevant total car costs, which then amounted to EUR 30,418.21 for 2018. Divided by the annual mileage of 32,717 km, this resulted in an individual kilometer rate of EUR 0.93/km, which the tax office applied in accordance with the declaration for business trips in 2018. In 2019, the tax office only recognized the flat-rate kilometer rate of EUR 0.30, since the circumstances had changed significantly compared to the previous year in view of the one-time expenses for the special payment and accessories and no other calculation was submitted.

According to the previous case law of the BFH, a special leasing payment to be made at the beginning of the leasing contract in the amount of the share of use attributable to the external activities was to be fully taken into account when determining the actual travel expenses on the basis of individual kilometer rates; consequently, these were immediately deductible income-related expenses. The BFH is now expressly no longer adhering to this. This is because the correct determination of the portion of the total annual costs incurred by the other business trips requires not only that the total costs be correctly recorded, but also that these total costs be allocated to the respective periods of use on an accrual basis. A special leasing payment, for example, is a prepaid usage fee that serves to reduce the amount of monthly leasing payments over the entire term of the leasing contract. When calculating the total annual expenses for other business trips, it must therefore be distributed evenly over the contract period, regardless of the time of outflow.

The aforementioned principles also apply to other (advance) payments that economically extend over the term of the leasing contract. Since the annual total expenses for the vehicle include not only all fixed costs but also the depreciation for wear and tear, expenses for a set of tires, for example, are not to be considered as vehicle costs immediately in the year of payment, but are to be included in the annual total expenses for the other business trips of the respective assessment period in the amount of the depreciation.

The ruling of the Munich Fiscal Court in favor of the field representative, which was still based on the previous BFH case law, was therefore to be set aside. In the second round of proceedings, the fiscal court must now determine the relevant parameters, such as proportionately deductible expenses and mileage, and calculate the total annual car costs on this basis.