Handing over a company car purchased on invoice to a family member

Service-Tax

In many cases, company cars are sold or transferred to family members over time. Cars that were previously leased out are also often sold. Taxpayers wonder how to document such a sale so as not to be exposed to negative consequences.

Handing over a company car to a family member

At the outset, it should be emphasized that the free delivery of goods is subject to VAT. According to Art. 7 sec. 2 of the Value Added Tax Act - hereinafter: the VAT Act - by the delivery of goods referred to in Art. 5 sec. 1, paragraph 1, shall also mean the transfer of goods belonging to his enterprise free of charge by the taxpayer, in particular:

  • the transfer or consumption of goods for personal purposes of the taxpayer or its employees, including former employees, partners, shareholders, shareholders, members of cooperatives and their household members, members of bodies constituting legal persons, members of the association;
  • any other donation

- if the taxpayer was entitled, in whole or in part, to reduce the amount of tax due by the amount of input tax on the acquisition, import or manufacture of these goods or their component parts.

As it results from the above regulations, tax on goods and services is generally subject to any free transfer of goods belonging to the enterprise, including any other donations associated with the transfer of the right to dispose of the goods as the owner, provided that the taxpayer was entitled to a reduction in the amount of tax. due by the amount of input tax charged on the purchase, import or manufacture of these goods or their component parts.

Example 1.

In 2018, the taxpayer purchased a passenger car for PLN 100,000 plus PLN 23,000 VAT. He deducted 50% of VAT on the purchase of the car. In May 2021, he gave this car free of charge to his son for her personal purposes. The taxpayer wonders how to tax the above transfer. In addition, in the case of transfer taxation, he considers what value of the car should be taken for the tax settlement.

In this case, the taxable amount of the free car delivery is the net market value of the transferred car for the taxpayer. We set it on the date of handover of the car, i.e. May 2021, in accordance with Art. 29a paragraph. 2 of the VAT Act.

Thus, the taxpayer should set the price of the car in line with market prices. In our case, he has deducted the input tax, thus the transfer will have to be subject to VAT.

We tax the basic VAT rate, i.e. 23%, for the transfer of a company car free of charge.

Handing over the car purchased from leasing

In economic practice, taxpayers very often, after buying a car from leasing, transfer it for their own purposes.

Example 2.

The taxpayer ends his car leasing in May. He buys the car at the end of the contract, but does not want to use it in his business. Thus, he will not introduce the car to fixed assets, but use it privately. Does handing over the car for private purposes result in VAT taxation?

The legislator equates activities performed without remuneration with paid activities, provided that the conditions specified in this provision are met. Thus, any free transfer by the taxpayer of goods belonging to his enterprise falls within the scope of the concept of "supply of goods for consideration", provided that the taxpayer was entitled, in whole or in part, to reduce the amount of tax due by the amount of input tax on the acquisition, import or the manufacture of these goods or their component parts.

As evidenced by the circumstances, the taxpayer intends to buy a passenger car after the end of the leasing contract in order to use the above-mentioned the car only for personal purposes not related to the conducted business activity. Expenses related to the acquisition of the above-mentioned the car will not be included in tax deductible costs, including through depreciation, and the car will not be included in the register of fixed assets and intangible assets or in the register of business equipment. It will not constitute property used by the taxpayer for business purposes. The amount of input VAT resulting from the invoice documenting the transfer of ownership of the above-mentioned the car will not be deducted by the applicant as part of the buyout.

Bearing in mind the provisions of law and the description of the case, it should be stated that the transfer of a passenger car by a taxpayer for personal purposes after the end of the leasing contract will not be subject to tax on goods and services pursuant to art. 7 sec. 2 of the VAT Act. In this case, the taxpayer is not entitled to deduct input tax.

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Handing over the car purchased on the VAT margin

Entrepreneurs not only buy new cars. Mostly used cars are purchased.

In many cases, the purchase is made on the basis of a VAT margin invoice. Thus, the taxpayer is not entitled to deduct VAT.

Let us recall that pursuant to Art. 120 paragraph 4 of the VAT Act, in the case of a taxpayer supplying second-hand goods, works of art, collectors' items or antiques previously acquired by that taxpayer as part of his business for the purpose of resale, the tax base is the margin constituting the difference between the sale amount and the purchase amount, less the amount tax.

Example 3.

The taxpayer purchased the car at a commission commission. Received a margin VAT invoice. He wanted to sell a car. He did not find a customer and decided that the car would be included in fixed assets and used in the conducted business activities. Before handing over the car, the taxpayer withdrew the car from its fixed assets. After three years, he decided to hand over the car to his daughter. How should he tax the transfer of the car to his daughter?

The provisions of the VAT Act provide for the application of a special taxation procedure for the supply of - inter alia - second-hand goods, consisting in the taxation of the margin. This is a special form of taxation in which the tax base is the margin being the difference between the sale amount and the purchase amount, less the tax amount. Such a taxation procedure may be applied in the case of the supply of second-hand goods previously acquired by the taxpayer in the course of its business for resale.

In our case, the car was purchased for commercial purposes. Thus, the vehicle was purchased for resale. Therefore, in the event of its transfer, the taxpayer is not obliged to tax it. When making the purchase, he did not deduct the input tax. In the event of the sale of such a car, the taxpayer could reapply the VAT margin procedure.

To sum up, in many cases, taxpayers who hand over goods for their own needs will not be obliged to tax them with VAT. However, in the event that the input tax on the purchased vehicle has been deducted, the taxpayer must always tax the transfer of it for his own purposes or to members of his family.