Employee car use facilitates the performance of professional duties. Does this have tax implications for the employee? How can the employer account for these costs? This is covered in today's "Tax This and That."
The tax consequences of granting a company car to an employee depend on how they use it. If the company car is used solely for business purposes, then its use has no tax consequences for the employee. All costs of using the car are borne by the employer. However, to recognize that the car was used exclusively for business purposes, statutory requirements must be met, such as submitting a report to the head of the relevant tax office and maintaining a mileage log.
However, it's common for employers to allow employees to use their company car for personal purposes as well. Allowing employees to use their company car for non-employment purposes constitutes additional compensation for their work. So how should this be taxed?
The legislature has opted for a simplified settlement method for employees' use of company vehicles. The employee's use of a company car for private purposes constitutes income. However, this income is determined on a flat-rate basis and depends on the type of fuel used to power the vehicle and its engine power. For cars with an engine power of up to 60 kW, electric cars (electric cars are defined as vehicles powered solely by electricity), and hydrogen-powered cars, the monthly flat-rate is PLN 250. For all other cars, the flat-rate is PLN 400 per month. However, if the car is used for private purposes only for part of the month, the flat-rate is 1/30 for each day of such use.
We now know how to account for the provision of a company car for an employee's private use. But what about operating costs? Should the fuel invoice be deducted from the employee's salary? Or should it be added to income? The legislature does not directly answer these questions, which has allowed the administrative courts to develop a line of case law on this matter. According to this line, the PLN 250/PLN 400 lump sum covers all operating costs, including fuel costs. The employer's obligation is not simply to provide the car. It is to ensure its proper use and cover all necessary expenses necessary to enable such use, such as operating costs, including consumables, fuel costs, and technical inspections. There is no justification for considering one type of these expenses—fuel costs—as a separate benefit. (As stated, among others, in the judgments of the Supreme Administrative Court of 1 October 2020, II FSK 2034/19, of 3 November 2020, II FSK 1653/18, or of 20 April 2022, II FSK 2012/19).
This does not mean that an employee cannot partially cover the costs of using their car for business purposes, for example, by purchasing fuel. In such a case, the flat-rate income should be reduced by the amount of the payment. If the payment equals or exceeds the flat-rate amount, the employee will not receive any income.
It should also be remembered that the employee's income generated in connection with the use of a company car for private purposes is included in the basis for calculating social security and health insurance contributions.
What about the employer's tax return? If a vehicle is used exclusively for business purposes, the employer can deduct 100% of the costs incurred in connection with the employee's use of the car as a tax-deductible expense. Similarly, the employer is entitled to deduct 100% of the VAT. However, if the employee can also use the car for private purposes, the employer is bound by the limit of deducting 75% of the costs as tax-deductible expenses and deducting 50% of the VAT.
If a vehicle is provided to an employee for a fee, the fee constitutes income for the employer. Providing a car for an employee's private use, however, does not affect the employer's right to depreciate the vehicle (provided, of course, that it is owned by the employee and not, for example, leased or rented). The only exception will be when the car is provided for an entire month solely for the employee's private use. The depreciation deduction for that month will not be considered a tax-deductible expense for the employer.
Under the Value Added Tax Act, providing a car for an employee's private use constitutes a paid provision of services that is subject to VAT. However, if the employer had the right to reduce the amount of output tax by the input tax on the purchase, import, or manufacture of the vehicle, or the purchase, import, or manufacture of vehicle components, providing the vehicle for the employee's private use will not constitute a transaction subject to VAT.
And next week we will check what the tax settlement looks like for company cars used by contractors and B2B collaborators.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of October 2, 2023
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