A company purchases a passenger car that does not have a global positioning system (GPS) installed. The car will be used both for the needs of the company and leased to another company, but at the moment it is not known what percentage of the total activity will be rental services. In this case, when the car will be leased to another company, but it is not known how often it will be used for the company's own needs, can the input value added tax (VAT) be deducted in the amount of 100%?
At the beginning, Article 100 of the Value Added Tax Law (VAT Law) and the informative material of the State Revenue Service (SRS) "Questions and answers on the application of value added tax" should be evaluated.
According to Article 100, Part 2 of the VAT Law, when purchasing a passenger car, the company is entitled to deduct only 50% of the tax amount payable to the state budget as input VAT tax.
However, Article 100, Part 3 of the VAT Law provides for a series of exceptions to Part 2 of this Article, and in exceptional cases, the company is entitled to deduct 100% of input VAT.
Article 100, Part 3 of the VAT Law stipulates that 100% input VAT can be deducted if:
- registered taxpayers buy, rent or import a car:
- passenger transport for remuneration
- for the provision of rental services,
- for the provision of goods transport services,
- for trade or hire purchase transactions, for training driving skills,
- for the provision of security services;
- the car is an operational vehicle;
- the car is used as an authorized car dealer's demonstration car or
- the car is used to secure taxable transactions.
However, in order to ensure that the car is actually used for transactions subject to VAT (Article 100, Part 3, Clause 4 of the VAT Law), the merchant must equip the vehicle with GPS. If the GPS is not installed, the exception will not be applied to the merchant and the VAT input tax on the car, which is used for the provision of taxable transactions, can only be deducted in the amount of 50%.
If the vehicle has been used for several economic activities, a more complicated situation arises.
Example
A registered tax payer buys a passenger car for rental services, but after some time starts using it for non-business purposes as well. In such a situation, the limitations set out in Section 100, Part 2 of the VAT Law for deducting VAT input tax must be observed, and this also applies to the purchase and operating expenses of the vehicle, including the purchase of fuel.
According to the given example, it can be concluded - if the car is used for various taxable transactions, the conditions of Section 100, Part 2 must be observed, and the input VAT tax can only be deducted in the amount of 50%, unless all the several purposes qualify for the exception norms, which give the right to deduct the input VAT tax in full. amount.
In the case of the reader, the vehicle is used both for his economic activity and for the provision of rental services. In accordance with the VAT law, it is possible to deduct 100% of VAT for rental services. However, the problem arose with the use of the car for the performance of one's economic activity. Considering that the company's vehicle does not have a GPS installed, the taxpayer is not entitled to deduct 100% of input VAT, so only 50% of input VAT can be deducted.
Therefore, based on the VAT law and what is explained in the information material of the SRS, the taxpayer can only deduct the input tax in the amount of 50%.
Deduction of input VAT in case of car purchase:
In addition, this case does not mention the amount for which the car was purchased. If the value of the vehicle exceeds 50,000 euros, it is considered a representative car. When the taxpayer owns such a car, the taxpayer cannot deduct input VAT on its purchase and maintenance at all.
Source: iFinanses