Company car clauses

Tax treatment
Works constitution issues


Electromobility – known as e-mobility – is en vogue. Companies and their employees can make a significant contribution towards the successful establishment of e-mobility – at least in urban areas. In fact, an increasing number of employers are deciding not to provide their employees with conventional company cars, but rather to offer electric vehicles ('e-cars') for business and, if appropriate, private use.

It is evident that the conversion to e-mobility gives rise to many legal issues (eg, laws relating to road traffic and rights of way or energy). In connection with the use of e-cars as company vehicles, particular aspects of employment law must be taken into account.

Company car clauses

As a rule, company car clauses currently include provisions on:

  • vehicle type and selection;
  • principles of procurement;
  • type of usage (ie, business/private use);
  • costs;
  • revocation possibilities for the employer;
  • vehicle care and maintenance; and
  • liability and insurance.

Should an employer decide to provide its employees with electrically powered vehicles rather than conventional company cars, special clauses will be needed.

For example, an employer could include in the agreement a clause prohibiting the use of e-cars in extreme temperatures, unless it is technically safeguarded that the vehicle battery can function fully in all environmental conditions.

A contractual clause would also be appropriate on how far the employee may travel from his or her place of work using an e-car. The travel range of electronically operated vehicles continues to be limited. In addition, there is still no nationwide infrastructure in Germany. If an employee violates the clause on the area of use, the contracting parties could stipulate that he or she must bear any incurred costs for the return transport of the vehicle.

According to previous decisions by the employment and administrative courts, an employee acts with gross negligence if he or she fills the company car with the wrong type of fuel (eg, diesel instead of petrol). The Lower Saxony Administrative Court of Appeal even considered the filling of a patrol car with the wrong fuel by a policeman as "subjectively inexcusable".(1) In accordance with the principles of compensation for damages within business entities, the employee had to indemnify the damages incurred by the employer (ie, motor damage, draining costs) through improper refuelling. Even though improper refuelling is not an issue with electronically operated company cars, it would nevertheless be prudent to include a clause as to when, how and where employees must charge the vehicle (eg, the electricity provider, the use of rapid charge). Initially, such a clause could stipulate that the employee may charge the vehicle only at the specific charging station operated by the employer.

Should e-cars grow in popularity, it will be easier to identify which other aspects need to be expressly stipulated between employers and employees.

Tax treatment

The provision of a complimentary company car, including for private use, is a benefit-in-kind which constitutes employment remuneration. Employees must pay tax on the monetary benefit either according to the 1% method or based on declared expenses (ie, a travel log). The work-intensive maintenance of a travel log makes sense for an employee only in context of the private use of a company car. Otherwise, the private-use share is taxed monthly at 1% of the gross list price of the company car (including special furnishings and value-added tax) at the time of its initial registration.

The private use of an e-car is (still) unattractive to employees as the gross list price for electric vehicles continues to be high – greater than comparable company cars with combustion motors. Thus an e-car 'costs' employees more than a conventional company car and, in addition, the latter is potentially better performance-wise, more reliable and more comfortable. It is unfortunate that such stumbling blocks stand in the way of the widespread adoption of e-mobility.

In its Electromobility Programme of May 2011, the government announced that it would adjust company car taxation due to the above-mentioned competitive disadvantages. However, such a law, which factors out the costs of the rechargeable battery in the calculation of the gross list price, was drafted only recently by the Ministry of Finance.(2) It remains unknown when the amended Income Tax Act will enter into force.

Some additional tax benefits have been implemented for employers. According to a draft bill by the Ministry of Finance, electric vehicles will be exempt from motor vehicle tax for 10 years, provided that they are registered by December 31 2015. The electricity which is necessary to charge vehicles will not be taxed. In addition, the possibility of a special depreciation in the first year (50%) is being considered.

Works constitution issues

The introduction of electric vehicles also raises works constitution issues. The use of conventional company cars triggers numerous co-determination works council rights. In future, the required fact elements in Section 87(1)(6) of the Works Constitution Act will play a special role. Currently, a company car is not termed a 'technical installation' under this provision because a company car is not designed to monitor employees optically, acoustically, mechanically or electronically (it is also not suited for this purpose). However, electric vehicles are 'travelling computers' with integrated on-board units which communicate directly and in real time through a computer with, for example, charging stations, work locations, manufacturers or employers. For this reason, electric vehicles will, in the future, likely have to be considered as 'technical installations'.

It remains to be seen what additional employment law issues will arise through the use of electronically powered company cars. Through the increasing interconnectedness of vehicles with other installations, further employment law and data protection issues are to be expected.


The success and the distribution of e-cars will depend decisively on whether employees are, in the long term, satisfied with the electric vehicles offered to them. It still cannot be predicted whether e-cars can – or will – fully replace conventional company cars. Many employees consider their company car to be not only a monetary benefit, but also a prestige item which they can use outside of their work hours without restriction. At a contractual level, employers will not find it easy to provide employees which previously used a conventional company car an inferior performing and potentially less reliable e-car against their will. For this purpose, a termination for variation of contract will likely be necessary.

Consequently, it must be hoped that companies and their employees are open to the notion of e-mobility. Otherwise, it is doubtful that the government will fulfill its target of getting one million electric vehicles onto the roads by 2020.

For further information on this topic please contact Eckhard Schmid, Bjoern Gaul, Simon Ramstetter or Bernd Roock at CMS Hasche Sigle by telephone (+49 89 23807 106), fax (+49 89 23807 40769) or email ([email protected], [email protected], [email protected] or [email protected]).


(1) File 5 LB 365/07.

(2) Draft bill of the 2013 Annual Tax Act dated March 5 2012.