The purchase of a vehicle for use in a company is regarded as tangible fixed assets for the company, which raises problems considering the business owner’s personal use of the vehicle, business use, or both, and consequently there may be differentiated tax treatment, as the deduction may only be applied according to the impact on the activity of the business.
We make a distinction between the tax treatment of vehicles on the national registry and vehicles registered abroad, taking into account whether the vehicles are in use or not, and paying attention to additional expenditure and the tax treatment of the leasing and renting of a vehicle.
For the purpose of Value Added Tax, hereafter VAT, of a new national or foreign vehicle, it is established that the fees sustained by the purchase, importation, rental, or termination of use by another bond of the investment goods that are utilized in all or part of the development of business or professional activity, could be deducted when dealing with tourism motor vehicles and their trailers, mopeds and motorcycles (definition stated in the Royal Legislative Decree 339/1990, 2nd March, by which the articulated text of the Traffic, Circulation of Vehicles and Road Safety Act), at 50%, then they will be presumed affected to the development of (the) entrepreneurial or professional activity in the proportion of 50%, in accordance with the Binding Consultation V1930-05.
In accordance with Article 95.4 of Act 37/1992, the business owner must observe the true degree to which the vehicle is affected in business activity and identify it with whatever means of proof admitted by law according to the established consultations that have been made.
Alternatively, the vehicles linked to the business are henceforth presumed affected at a proportion of 100% by the development of business or professional activity; we can therefore subtract 100% of the VAT fees from the purchase and from all the additional costs, such as the maintenance, repairs, parking costs, fuel, and tolls. It will depend on the potential types of economic activity that develop, if that activity requires a vehicle for travelling, and the evidence provided regarding the vehicle’s use, which could be parking tickets, work orders, the business’ own parking with 24 hour surveillance, vehicle tracking systems that covers two vehicles: one for domestic use and one for work, although sometimes this is not considered sufficient evidence of its exclusive use in business activity.
Other evidence which helps to demonstrate exclusive commercial use could include, for example, keeping the list of contacts and meetings that justifies any business travel and labeling the car with adverts for the business, in accordance with Ruling 953/2007 of 27/11/97 at the Court of Justice, Extremadura.
If, on the other hand, a company decides to purchase a used vehicle for professional activity, the approach to finance regarding the VAT deductible on the part of the companies, that is, the principles of neutrality of the VAT law must be complied with.
There is an exception to the aforementioned law, which states that it is not possible to subtract the VAT when purchasing a used vehicle if it is purchased by a retail business owner, subject to the Particular Regime of Used Goods.
A business owner or an independent worker can subtract the VAT through the purchase of a vehicle, both from the purchase and from its use and maintenance, depending on the activity carried out and the type of vehicle.
But generally, 50% of the VAT can be subtracted in the purchase and maintenance of the vehicle as long as they show that it is used in commercial activity.
In other cases, 100% may be deducted if any of the following circumstances apply:
a) Commercial Vehicles
b) Vehicles used in the provision of transport services to travelers as compensation
c) Vehicles used in the provision of teaching services for drivers or pilots as compensation
d) Vehicles used by their manufacturers during testing, trial, or demonstration processes or in sales promotion.
e) Vehicles used for the professional travels of commercial representatives or agents.
f) Vehicles used in surveillance services.
If the vehicle is used by the sales representative of the business, we find ourselves dealing with an exception of Article 95.3.2 of Act 37/1992 as 100% can be deducted, therefore, from the VAT fees.
However many more circumstances are realized in relation to the use of the vehicle, it is more straightforward if the Inspector of the corresponding Tax Agency approves the corresponding deduction.
In the case of second-hand vehicles the handling is different to the aforementioned treatment of new vehicles, given that if a sale is made by a professional to an individual, the VAT as such only is applied to the profit margin, that is, to the difference between the purchase price and the sale price.
And if the buying and selling take place between private individuals, the VAT does not apply, however the Transfer Tax (ITP), which is fixed at 8% in Galicia and 4% in the rest of Spain, does apply.
In the purchase of vehicles the percentage that we subtract also will be applicable to the additional charges, such as fuel, repairs, maintenance, parking charges, road tolls, amongst others.
However, recently, the Senior Management of Taxation has unlinked the subtraction of the VAT from the purchase of the vehicle, from the subtraction of the fees sustained in fuel, as long as this fuel is used in the fiscal year of business activity and not for other uses. That is, although we deduct 50% of the VAT of the vehicle, we can subtract 100% of the gasoil/ petrol/ fuel.
There is a Binding Clause V2475/2012 regarding the previous statement, that condenses in this judgement, that the taxations are unlinked in the practice of the right to the deduction of VAT sustained in the purchase of fuel from the deduction of VAT applicable to the actual purchase of the vehicles. Therefore, is becomes possible to subtract 100% of the VAT fees paid by fuel coverage, although the vehicle does not contribute to 100% of the business activity.
It is important to review, as the consultation specifies, the degree of use must be approved by the taxpayer by whatever means of evidence admitted by law, such as, for example, with an invoice signed by the client whom is visited outside the locality.
This consultation does not explain the premise of the deduction of the VAT associated with expense in gasoil/ fuel in a vehicle that is not in business use. On the one hand, prudence invites us not to subtract this VAT, as the vehicle is not involved in business activity, however on the other hand, it may address an expense necessary for this activity, and it is supposed that this fuel VAT is not directly related with the vehicle´s affectation.
For the VAT to be deductable in repairs, the same criterion that was followed regarding the deductible VAT when buying the vehicle must be followed. We will start from the 50% of deductible VAT, thereupon, if a greater percentage has been deducted at the time of purchasing the vehicle (depending on the degree of affectation that can be proved), we will deduct the same percentage from the repairs or services to the vehicle.
Several considerations must be made when deducting the VAT regarding toll and parking expenses. Given that, we must draw from the premise of which the majority of VAT fees sustained by toll expense are not deductible, since usually the proof that is delivered on passing through a toll station are tickets with incomplete information and not deductible from the effects of VAT nor from the Corporations Tax. To that end, it is recommended that you use the “tele-toll system” Vía-T, in order to be able to request complete bills afterwards.
In the case of parking expenses, it is very similar to toll expense, since blue zone parking tickets in many cities are useless. If it concerns the use of public or private parking, it is essential to request the complete invoice from the dealership company. Therefore, it is recommended, if the parking (space) is used relatively frequently, to use the option that gives us summary invoices, allowing us to amalgamate them into one single invoice covering all the visits to the car park/ parking space within a determined time period, for example, a month, two months, five months, amongst other options.
The tax treatment of vehicle leasing and rental, taking into account that its use must be exclusively for business purposes, the cost of renting or leasing the vehicle will be subject to the following tax treatment for VAT and for the Corporation Tax , from now on known as CT:
Rental (VAT): Deals with VAT for rental service. This VAT is declared as an expense.
Rental (CT): The fee is deductible as an expense. The financing is credited with interesting fiscal advantages, in the form of deductions and the acceleration of goods repayment period, in this case, of the vehicle.
Leasing (VAT): Deals with the VAT associated with purchasing a vehicle. It is declared fractionated in every monthly premium.
Leasing (CT): The fee includes two concepts, on the one hand, the financial charge that is paid to the lending institution, that is considered a tax-deductible expense, and on the other hand, the recovery of the cost of the goods that is considered fiscally deductible.
What´s more, it is important to highlight the fiscal benefits as much in the acceleration of repayment and tax deductions, as in subsidies.
With regards to the tax innovations in the VAT treatment in the purchase of a vehicle for a company, it is highlighted that, in 2014 a 10% deduction was applied to investment profits in the purchase of new assets, however, this 10% does not apply to companies this year (2015).
The individual business owner will find himself faced with a series of changes that hereafter will be mentioned, but will be able to continue to enjoy the deduction allowed by the CT:
It will be possible to acquire assets during the year in which the net yields that were invested are obtained, or in the following year, and the deduction will be applicable to the year of purchase, but the percentage is reduced to 5%.
This is different if business activity begins this year and the 20% reduction is applied, the percentage reduces from 5% to 2.5%.
Furthermore, the transfer of a business vehicle is important, since that as from this year , as there is a keen interest that the vehicle that the business transfers is energy efficient, given that, in that case, the valuation of income in kind could be reduced by 30%.
All of these are the most relevant aspects to take into account when purchasing a vehicle for business purposes in this financial year.
Juan Camacho Vázquez - Partner of Balms Abogados Galicia
Article published in Economist & Jurist