Following the expiry on 1 January 2014 of the European Commission’s authorisation to apply restrictions on deducting VAT on purchases of cars with the so-called “grille” and on fuel, Polish law introduced significant changes to VAT accounting for such vehicles. What is the current scope for deducting VAT in full on passenger vehicles? What additional deductions may become available in the future?
It is the new year that the amended provisions of the VAT Act apply, including the settlement of VAT on the acquisition and leasing of cars.
As with 2013, from 1 January 2014 the possibility of a full deduction of VAT on non-personal vehicles with a maximum permissible weight of more than 3.5 Tons. The taxpayers will still be able to count 100% input tax on both the purchase of such vehicles and the expenditure related to their operation.
A new category of vehicles has been added to the existing categories of cars with full VAT deduction rights.
These are vehicles with a maximum permissible mass lower than 3.5 t, but other than passenger cars, meeting at the same time restrictions on the number of seats (seats) which, together with the driver's seat, are:
- 1 - where the permissible load capacity is equal to or greater than 425 kg,
- 2 - where the permissible load capacity is equal to or greater than 493 kg,
- 3 or more - if the permissible load capacity is equal to or greater than 500 kg.
In addition, it was noted that the permissible capacity of these vehicles and the number of seats (seats) should be determined on the basis of documents issued in accordance with the provisions of road traffic law, i.e. it should be derived from the approval certificate and, as a last resort, from the registration certificate of the vehicle citing the approval certificate.
On 7 February 2014 an amendment to the VAT Act has been passed, which will enter into force 1 April 2014 and will bring further substantial modifications to entrepreneurs who use cars to run business and for private purposes.
The revised rules clearly distinguish between the use of a passenger car for company purposes and the use of a "mixed".
Of which second if the car is used for both corporate and private purposes - the entrepreneur will be entitled to deduct 50% VAT on acquisitions, repairs and other operating expenditure. In addition, the current quota limit will not apply, so when buying more expensive cars we will deduct more VAT. However, the exception will be the deduction of VAT on fuel, as in this case 50% the deduction will be granted only from 1 July 2015
However, if the car is used exclusively for business activity, then the trader will be entitled to deduct 100% VAT on both purchase invoices and other operating costs. It does not matter whether it will be a passenger car with a so-called “crate” or another – if it is intended for company use only, the right to a full deduction will be granted.
The provisions that will enter into force provide for the presumption of the use of a passenger car in a mixed manner, i.e. for business and private purposes, so that a number of statutory requirements will have to be met in order to benefit from the full VAT deduction.
They relate to the obligation to keep track record of the vehicle and to notify the tax office of the possession of a car intended exclusively for business use. Information to the tax office will have to be forwarded to 7 days from the date of application first expenditure relating to the vehicle.
If an entrepreneur opts for a full deduction, he must be prepared to record the course and the checks on their regularity thoroughly – this record is not the same as the popular ‘kilometer’ for income tax purposes. The incorrect registration or any use for private purposes of a car for which exclusive business use has been declared would result in a claim made by the entrepreneur being considered false, which would result in criminal liability.
In the explanatory memorandum of the draft amendment, the Ministry of Finance indicated that the assessment of the use of the car for company purposes should only be made in objective terms, i.e. there is no potential possibility of using the vehicle for private purposes. For example, this may be the case in the following cases:
- • where the taxable person is engaged in the sale of these vehicles and the possibility of their private use is eliminated (for example, cars are not registered and cannot move on the road),
- • where the taxable person's business is to rent these vehicles and the possibility of their private use is eliminated,
- • where the structure of the vehicle objectively indicates an exclusive use for business activity and its possible use for purposes not related to business activity will in this case be irrelevant, e.g. excavator,
- from the documentation (regulations, contracts, orders, etc.) held by the taxable person, it is objectively clear that the vehicle is used exclusively for business activities and that there is no possibility that the employee "privately" will use the company car, e.g. to get to his place of residence.
A significant number of situations where the tax authority can easily challenge the full right to deduct VAT by an entrepreneur and the administrative costs associated with the new requirements mean that many entrepreneurs do not choose to risk a full deduction of VAT, despite the fact that cars actually use for business purposes. It is worth noting, however, that, if VAT is fully deducted, the accuracy of the data in the records will provide a wide scope for disputes between taxpayers and tax offices and tax control offices.