Deduction of input VAT on acquisition and operation of motor vehicles vs. income tax

New regulations on deduction of input VAT on acquisition and operation of motor vehicles entered into force on 1 April 2014. Although the changes might appear to affect only VAT, the new rules may also have an impact on income tax. For example, assuming for purposes of VAT that a company car will be used for mixed purposes may in turn raise doubts whether the employee is making personal use of the car and therefore the imputed benefit to the employee from this use should be reported as the employee’s taxable income. Free use of a company car for the employee’s private purposes could also generate a tax risk for the employer concerning the possibility of recognizing the depreciation of the car as a deductible revenue-earning cost of the employer.

It is also possible for the employee to use a company car for private purposes for a fee, e.g. on the basis of a lease agreement under which the employee pays the employer rent. If a company car is provided to an employee for private use for a fee, the employer may deduct all of the expenditures associated with the car as revenue-earning costs.

This means that the employee’s use of a company car should be appropriately regulated by the employer and properly settled for purposes of both VAT and income tax.

If you require our assistance in this respect, please contact our tax adviser and advocate Aleksandra Faderewska-Waszkiewicz.