Germany Pushes Companies Towards Polluting SUVs Instead of Electric Cars

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Last Updated on: 23rd April 2025, 04:54 am

The tax incentives in Germany to steer companies towards electric cars are amongst the weakest in Europe and three times lower than in France. Poland, Spain and Italy also perform worse than their neighboring countries in designing a green fiscal system.

Germany offers one of the smallest ‘tax gaps’ in favour of electric company cars. The difference in taxes that companies pay for a petrol car compared to an electric vehicle is almost €9,000 over four years, compared to more than €24,000 in France, new T&E analysis shows. The gap between the EU’s two largest automotive markets becomes bigger the larger the car is, to the point that no other EU country gives as many fiscal advantages to large polluting SUV company cars as Germany. A big tax gap is an important incentive to accelerate demand for EVs. T&E’s Good Tax Guide has looked at tax gaps in 31 European countries and finds that out of the five largest EU markets only France ranks in the top 10.

Corporate cars account for 60% of all new cars in the EU and are therefore an important market to accelerate electrification. The top five markets alone (Germany, France, Italy, Spain and Poland) represent 71% of corporate car sales, and 42% of all new sales in the EU. But only France is creating effective incentives for the purchase of electric company cars.

Spain, with a very low tax gap in favour of corporate EVs (Є3,200), is failing to significantly incentivise electrification. Italy has a bigger tax diffferential (Є14,700), but it is still less than half that of Portugal (Є30,300), which is the best performing Southern European country in the T&E ranking. In Eastern Europe, Slovenia is best in class, having a disparity between powertrain technologies (Є27,000) that is eight times that of Poland (Є3,100).

With some of the highest taxes on polluting company cars, the Nordic countries show the polluter pays principle leads to higher electrification rates. Finland and Sweden also serve as examples of how, when electric cars become the norm, they tend to be taxed higher. This explains their reduced tax differentials, at Є13,300 and Є11,900 respectively.

Driving the SUV trend

Company car taxation is also driving Europe’s trend towards large SUVs. In 2024, large petrol and diesel SUVs (segments D to G) accounted for 10.3% of new combustion corporate car registrations, almost double the share in the private market (5.5%), while the share of heavier SUVs (segments E to G) were four times higher than in the private segment (2.5% vs 0.8%).

Germany has the worst policies when it comes to taxing heavier polluting corporate cars. Companies even get more fiscal benefits – through VAT deductions and depreciation write-offs – than the taxes they have to pay. As a result, 40% of heavier combustion SUV company cars sold in the EU end up on the German market. In contrast, France penalises these big polluters a lot, accounting for only 0.3% of these SUVs. Other big markets such as Italy, Spain or Poland give no strong disincentives for these vehicles either.

T&E said fixing badly designed company car taxation policies is essential to curbing the trend towards large polluting SUVs in Europe. France, Portugal and Slovenia have much greener fiscal systems, taxing company cars based on their CO₂ emissions and weight. However, Germany is one of seven EU countries that has no acquisition tax for petrol cars yet and, when it comes to company car taxation specifically, it still offers VAT deductions and applies high depreciation allowances for combustion engine vehicles.

Stef Cornelis, T&E’s director for Electric Fleets, says: “Many governments in Europe – especially the big countries such as Germany — have a tax policy for cars that is bad for climate, bad for the future of our automotive industry and gives rich drivers even more benefits for polluting. The solution is fairly simple: Governments should have the courage to tax cars on how much they pollute and the space they take up. This will generate more revenue and boost demand for electric vehicles.

“But also carmakers should play their role in this debate and finally support higher taxes for large petrol SUVs. Important voices such as the German automotive association, VDA, keep pushing back against this. You cannot complain about lack of demand, ask the European Commission to weaken your targets and, at the same time, refuse green tax reforms or push back against the European Commission’s plans to accelerate electrification of company car fleets.”

News release from T&E. Read the full report.