VAT deductions for the purchase of a leasing car

Car Leasing among entrepreneurs is already a common phenomenon. After the end of the basic period, the beneficiaries often decide to buy out the leased car for further resale. Depending on the circumstances, the tax consequences for the tax on goods and services may be very different. First of all, it is the degree of right to deduct input tax from the purchase of a passenger car.

According to the Polish VAT regulations, the principle is that in the case of expenditure relating to motor vehicles, including the acquisition, import or manufacture of these vehicles, the taxable person is entitled to deduct 50% input tax on the transactions indicated.

Taxable persons are entitled to deduct 100% input tax where the vehicle is:

• used exclusively for the business of the taxable person, or
• designed for transport at least 10 persons, including the driver, if the documents issued under the traffic regulations result in such use.

In accordance with the provisions in force, it is assumed that a vehicle is used solely for the business of the taxable person if:

the use of these vehicles by the taxable person, in particular those laid down in the rules for their use, additionally confirmed by the taxable person for those vehicles by the records of the course of the vehicle, excludes their use for purposes not related to economic activity, or

the construction of these vehicles excludes their use for non-economic purposes or makes their use for non-economic purposes irrelevant.

Focusing on first from the above cases, it should be pointed out that the Goods and Services Tax Act provides for a number of exceptions to the obligation to conduct so-called kilometres. This is primarily about cars intended exclusively for:

• sales,
• the sale, in the case of vehicles manufactured by the taxable person,
• rendering of paid use under a lease, lease, lease or other similar contract
• - where the sale, sale or re-use of these vehicles is the subject of the taxable person's business.

While the catalogue of activities benefiting from the exemption from the obligation to keep records of course does not give rise to much doubt, the condition that those activities are the subject of the activities of the taxpayer may give rise to considerable interpretation problems.

By final judgment of 6 May 2010[1], The Provincial Administrative Court in Krakow stated that ‘the fact that the sale to a leasing company of a purchased car in the execution of a return lease is treated as an economic activity within the meaning of Article 15(1)(2) The taxable tax on goods and services does not determine that this sale is "the object of this activity".

It is necessary to distinguish between the activities carried out in the course of an economic activity and those covered by that activity.’ The thesis of the said judicat must be read in such a way that the mere fact that certain activities are carried out in the course of a business does not prejudge that the resale of the vehicle purchased previously falls within the taxable person’s business.

The judicature also addressed the issue of reselling so-called demonstration cars to drive trial potential buyers.

By judgment of 22 April 2021[2], The Supreme Administrative Court has confirmed the prevailing position that the expression "only" used in the Goods and Services Tax Act emphasizes that the car cannot be used even temporarily for any other purpose, including demonstration activities (testing).

This means that, where, during the period between the purchase of the leasnig and the resale, or the commissioning, the car was used in the taxable person's business for other purposes (e.g.

as a commercial vehicle, etc.), in order to benefit from the possibility of deducting all the tax charged on the purchase of the leased car, the taxable person should keep detailed records of the conduct and report this to the tax office. Otherwise he will be entitled to deduct only 50% tax on the charges.

In this context, it is also worth recalling an interesting NSA judgment of 12 April 2017[3], in which it was found that the use of a replacement car transferred under a paid lease agreement for use to another person would not undermine the fact that that car would be substituted for a specific location by an employee of the company.

Indeed, in order to effectively implement the lease agreement, the transfer of the car will have an indissoluble link with the company's business activity involving the leasing of cars.

It is difficult to accept the economic activity of giving up cars for use, without the possibility of bringing the car to the place indicated by the tenant, even more so if the contract concluded so requires.

Given the above, in order to exercise the right to deduct 100% the tax charged on the purchase of a passenger car from leasing should be borne in mind that this preference depends on the subject matter of the taxable person, the destination of the vehicle only for resale or the keeping of detailed records of the course during the period from the date of purchase to the date of resale.

Author: Jan Markowicz Advocate, graduate of the Faculty of Law and Administration of the University of Silesia in Katowice in the direction of Law. In professional practice, it focuses on the legal and tax service of economic operators and individuals. Author of publications and articles on tax law.