The report reviews the extent to which the current taxation of company cars artificially promotes the use of such cars beyond its underlying merits. The key question at issue in the report is whether the employees by way of the free use of such cars receive benefits that are under-taxed relative to alternative salary remuneration. This study presents new, nearly EU wide estimates of the level of subsidies to company cars.

In addition it also provides some preliminary rough illustrations of the possible effects of such subsidies on economic welfare and environment and discuses the policy implications.

The main conclusions of the report are:

• Under-taxation of company cars is largely the norm within EU, though with substantial variations
• Direct revenue losses may approach ½ percent of EU GDP (€54 billion) and welfare losses from distortions of consumer choice are substantial, perhaps equal to 0.1 to 0.3 percent of GDP (€12 billion to €37 billion)
• CO₂ emissions are boosted by incentives to buy fuel and larger cars
• More neutral taxation of company cars, i.e. higher taxation of employee benefits, could enhance welfare and reduce adverse environmental impacts in line with national and EU objectives in the areas of climate and energy policy

Consequently, the report suggests that Member States should urgently look at whether their company car tax facilities can be better aligned with their general policy objectives on economic efficiency, the environment and efficiency, the environment and equity, and more specifically on their greenhouse gas reduction targets. The report can be accessed at http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_papers/taxation_paper_22_en.pdf