City sanctuaries of vehicle taxation: 25 municipalities garner half of corporate automobiles' tax subsidies

Navigating the labyrinth of car buying isn't always straightforward. Besides considering the car model, fuel, seats, and color, you'll encounter a host of extra details like taxes, emissions, and financing. While some taxes are compulsory, like the Vehicle Technical Inspection (ITV) or the registration tax, others are optional and depend on your location.

Case in point: Catalonia levies a tax on carbon dioxide emissions, while some municipalities may offer reduced circulatory taxes or excise duties on vehicle fiscal horsepower. These taxes, known as the IVTM or Mechanical Traction tax, are subject to local variations and may entail attractive incentives in certain locations.

The "Tax Holiday" Spots for Circulatory Taxes

For over 20 years, the European Association of Automobile Users (AEA) has been singling out the municipalities that offer the most advantageous IVTM rates, which they deem as the "tax havens" for circulatory taxes. The practice of setting the minimum IVTM rate, as allowed by the Local Government Law, started quite by chance.

As an example, if a rental car has between 8 and 11.99 fiscal horsepower and should pay more than 34 euros, in one of these so-called "tax havens," an 85% discount is applied, reducing the amount to 8.52 euros. As of 2023, the AEA identified around 25 such municipalities across Spain, with the majority located in the Community of Madrid. These tax reductions allow large companies to register their entire fleet in the most favorable locations, while individuals would need to justify a residence in those municipalities to take advantage of the lower rates.

The Powerplay of Large Companies

This tax-scheming began at the onset of the 21st century, as large rental companies took advantage of the fact that the provincial identification was still maintained in vehicle registrations. These businesses, often situated around airports, identified municipalities with the most favorable rates, domiciled their cars there, and reaped the benefits.

After the shift to the current European system, companies devised a new strategy: they registered their entire fleet in the most advantageous municipality. This technique persists to this day, and large companies, particularly those in the rental sector, find it relatively easy to capitalize on these tax breaks by simply opening a "convenience address" in their preferred municipality.

The consequences of these large-scale movements are two-fold. Firstly, it leads to a fictitious surge in the number of tourist cars in these small towns, with some villages boasting more than 30 tourist cars per resident. Secondly, around 230,000 company cars are registered in these municipalities, representing almost half of all registered vehicles in Spain. Some of the most popular locations for registering company vehicles include Colmenar de Arroyo, Robledo de Chavela, Venturada, and Moralzarzal in Madrid, and Tejeda in Las Palmas.

A Brain Drain for Large Cities?

These tax breaks have raised concerns among large cities like Madrid and Barcelona, which have filed a lawsuit to challenge the practice. However, the judicial outcomes have not resulted in a reduction in the tax rates for the metropolises. This is because their vehicle fleet is predominantly made up of private individuals, and reducing the tax would significantly decline their annual revenue.

Despite the stumbling blocks faced by large cities, automotive experts argue that the taxation system needs an overhaul. The current practice of taxing vehicles based on their fiscal power is outdated and no longer reflects modern engine technology. Alternative proposals, such as Paris' current parking tariff, which considers factors like weight, engine type, and size, could help adapt the system to today's reality.

City sanctuaries of vehicle taxation: 25 municipalities garner half of corporate automobiles' tax subsidies