Leasing car sublet and income

Service-Tax

As part of his business, he uses a passenger car purchased under the terms of operating lease, which he additionally rents. Does the sub-rental of a leasing car on the part of the entrepreneur generate income from non-agricultural economic activity?

Marek, Wroclaw 

In the case of subletting a leasing car, the entrepreneur generates income, which should be classified as income from non-agricultural economic activity.

Taxpayers running a business include the obtained income to the source of income referred to in article 2. 10 sec. 1 point 3 of the PIT Act - non-agricultural economic activity. As a rule, all revenues related to the performed economic activity should be classified to this source.

It is quite common practice to use passenger cars under a leasing contract for company purposes. Issues related to the mechanism and functioning of leasing are regulated in the Civil Code. Pursuant to Art. 7091 of the Civil Code, by the leasing contract, the financing party undertakes, in the scope of the activity of his enterprise, to purchase the item from the designated vendor under the conditions specified in this contract and give this item to the user to use or use and receive benefits for a specified period of time, and the user undertakes to pay the financing party in agreed installments, cash remuneration, at least equal to the price or remuneration for the purchase of goods by the financing party. The leasing contract should be concluded in writing, otherwise null and void.

If the lessor agrees, the entrepreneur may sublet the leasing car. This rule results indirectly from the content of Art. 70912 of the Civil Code, according to which, without the consent of the financing party, the user may not give things for use to a third party. In the event of a breach of the above obligation, the financing party may terminate the lease agreement with immediate effect, unless the parties have agreed a notice period.

A feature of a rental agreement (as well as a sub-rental agreement) is its payment. As a result, the amounts received on the basis of subletting the car should be considered taxable income. Pursuant to Art. 14 sec. 1 of the PIT Act, income from business activities is considered to be the amounts due, even if they were not actually received, after excluding the value of the returned goods, granted discounts and discounts. In the case of taxpayers selling goods and services subject to tax on goods and services, the revenue from this sale is deemed to be revenue less the tax on goods and services due.

A more detailed description of the above rule can be found in Art. 14 sec. 2 of the PIT Act, which presents a catalog of revenues classified as non-agricultural economic activity. At this point, it is worth referring to art. 14 sec. 2 point 11 of the above-mentioned the act, which states that the income from business activity is income from rental, sublet, lease, sublease and other contracts of a similar nature, assets related to business activity.

Undoubtedly, the car taken by the entrepreneur under the operating lease is related to the conducted business activity. As a result, the taxpayer should also qualify the funds obtained from subletting the car as income from business activity. Although the car taken under operating lease does not constitute a fixed asset of the taxpayer, because it is not its property, the provision refers to assets "related" to business activity, and not owned by the entrepreneur.

The above position is confirmed by the tax authorities. An example is the individual interpretation of the Director of the National Tax Information of June 26, 2017, No. 0111-KDIB1-1.4011.27.2017.2.MG, where the tax authority indicated the following in the justification: Taking into account the above-mentioned provisions of the tax law and the presented description of the future event, it should be stated that the income received by the Applicant from the sublease of the leased car should be considered as income related to the assets related to the sole proprietorship. As it follows from the description of the case in question, the lease agreement of the above-mentioned the car was concluded by the Applicant as part of a sole proprietorship. Therefore, such income is combined with the income obtained from this activity, as an asset related to the non-agricultural business activity conducted by the Applicant individually.

Due to the above, it should be stated that the paid sublet to the general partnership by the Applicant of the car referred to in the application results in obtaining revenues from the source referred to in art. 10 sec. 1 point 3 of the Act on p.d.o.f. (i.e. from non-agricultural economic activity).

Summarizing the above considerations, it should be pointed out that evidently the income from subletting a leased car is considered to be part of non-agricultural business activity. Entrepreneurs must bear in mind that without the consent of the lessor (financing party), it may not be leased to a third party.

Example 1.

A taxpayer running a non-agricultural business has signed a lease agreement for a passenger car. In the course of his business, it turned out that the car was not necessary for him to run his business, and therefore he decided to sublet it. The entrepreneur obtained the lessor's consent for such an operation. The funds received from the lessee for subletting the leasing car constitute income for the entrepreneur from non-agricultural business activity.