In Belgium, the CO2 emission level of a car has an impact on car taxation. This standard determines the tax deductibility, how the benefit in kind is calculated and also plays a role in classification as a false hybrid.

About WLTP and NEDC

Under European pressure, the standard by which the CO2 value must be determined has changed. As of September 2018, newly registered cars are subject to the so-called 'WLTP standard' to determine CO2 emission levels. WLTP stands for Worldwide Harmonized Light Vehicles Test Procedure. This test replaces the less stringent and less realistic NEDC test, which stands for New European Driving Cycle. This test has been in use since the 1970s, but came under attack due to a.o. dieselgate.

Impact on car taxation

The result of the WLTP test is a higher value, which therefore has an impact on car taxation. A brief sample shows that the CO2 emission level of an average family car is about 15% higher if the WLTP test is applied. The tax deductibility would decrease from 68% to 60% and the benefit in kind would increase from 1,400 to 1,850 euros. The effect is even greater in the case of a hybrid car that suddenly becomes 'false'.

In a transitional period until 31 December 2020, car manufacturers will have to include a converted NEDC value on the certificates of conformity, i.e. the NEDC 2.0. Afterwards, this is still allowed, but no longer necessary.

Relevance of CO2 emission levels

The CO2 emission level has tax relevance for the following elements:

1. Tax Deductibility

Since the beginning of this year, both in personal and corporate income tax, the tax deductibility has been calculated according to the so-called gram formula:

120% - (0.5 x fuel coefficient x CO2)

The fuel coefficient is 1 for diesel cars, 0.95 for petrol cars and 0.90 for natural gas cars.

For many cars, this new formula already leads to a lower tax deduction compared to the deduction categories that applied until last year.

2. Benefit in kind

The benefit in kind on which an employee/business manager is taxed when a company car is made available to him is determined according to the following formulas (assessment year 2021):

For diesel cars:
Catalogue value x (5.5 + 0.1 x (CO2 - 91)) /100 x 6/7

For petrol/natural gas cars:
Catalogue value x (5.5 + 0.1 x (CO2 - 111)) /100 x 6/7

3. Classification as false hybrid

For so-called false hybrids, the rule is that the CO2 emission level of the non-hybrid counterpart must be used. This is determined, on the one hand, according to the ratio of the weight and capacity of the battery (capacity of less than 0.5 kWh per 100 kilograms car weight) or again the CO2 emission level (more than 50 grams). The tax administration recently published a list of false hybrids with the corresponding vehicle for the calculation of the CO2 emission level.[1]

[1] Circular 2020/C/43 on the definition of the term 'corresponding vehicle’

Administration shows its good side

Since the impact of the new WLTP standard on car taxation is considerable, a transitional period was provided for during which the NEDC values may still be used until 2020. Of course, this is only a postponement of the inevitable, with tax increases being likely as of 1 January 2021 for the same car.

However, the administration showed its good side by providing a clarification in January and March 2020, albeit subject to new legislation.

1. The NEDC 1.0 CO2 standard will apply when the registration certificate of the vehicle only states a CO2 emission level according to the NEDC standard. More particularly, this is the case for vehicles registered before 1 September 2018.
2. The WLTP CO2 standard will apply when the registration certificate of the vehicle only states a CO2 emission level according to the WLTP standard. More particularly, this will be the case for vehicles registered as from 1 January 2021.
3. If the registration certificate of a vehicle states both values (NEDC 2.0 and WLTP), the taxpayer can choose.

What does the position of the tax authorities mean specifically?

1. Tax Deductibility

If the car was registered before 2021 (and for which the NEDC standard was still mentioned on the certificate of conformity), this NEDC CO2 emission standard may continue to be used after 1 January 2021. The deductibility of the car costs will not be adversely affected. Conversely, this will be the case for cars registered as from 2021 and for which only the WLTP standard has been determined.

2. Benefit in kind

If the WLTP standard were to be applied from 2021 onwards to calculate the benefit in kind, a higher benefit in kind would be obtained for the same company car, resulting in higher taxes. In principle, this will not be the case for company cars registered before 1 January 2021.

3. Classification as false hybrid

It is possible that a car will be classed as a 'false hybrid' when the WLTP standard is applied, whereas this was not the case under the NEDC standard. The resulting steep tax increase would come as an unpleasant surprise for those who bought a car before 2021 on the assumption that it was a 'true hybrid'. These buyers can now rest assured.

This addition is therefore good news for taxpayers. As long as the NEDC standard is mentioned on the certificate of conformity, it can be used. In practice, the WLTP standard will only be used for tax purposes for newly registered vehicles after 1 January 2021.

If you have any questions about this, don't hesitate to contact us.