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Tax treatment of the cost of company cars used for private purposes

In today's alert we would like to focus on the costs incurred by employers in providing company vehicles which are used by employees for both business and private purposes on the basis of an agreement with the employer. This brief summary focuses only on corporate income tax, but for completeness we would like to draw attention to the payroll tax and VAT obligations.

The employer incurs many different costs in connection with the operation of a company vehicle - e.g. depreciation, repair costs, parking fees, insurance, lease payments in the case of a leased vehicle, etc. The question arises to what extent these costs can be claimed as tax deductible for corporate income tax purposes if the vehicles are used not only for company purposes but also for the private needs of the employees - e.g. whether to claim the costs in proportion to the number of kilometres driven for business vs. private use or according to other criteria.

According to the current interpretation of the General Financial Directorate expressed in Guideline D-22 (point 26 on Section 24(2)), there is no need to prorate the costs incurred in such a situation.

A similar conclusion regarding the deductibility of VAT paid or not claimed in connection with the use of company vehicles follows from the conclusions of the Coordination Committee of the Chamber of Tax Advisors and the Ministry of Finance No. 301/12.05.10.

All costs related to the ownership and operation of a car can be considered fully tax deductible, regardless of the extent to which the employee uses the vehicle for private purposes.

The only exception is the cost of fuel, the consumption of which is a tax deductible expense only when the vehicle is used for business purposes. If an employment contract, collective agreement, internal directive or other agreement gives employees the right to compensate the fuel for private use, then these costs may also be tax deductible.

For the sake of completeness, we would like to add that the above brief commentary cannot replace a detailed tax assessment of a specific tax situation. We will be happy to assist you with these and other tax aspects.

If you have any questions, please contact the authors of this article or the EY tax team with whom you regularly work.

Author:

Ladislava Zamazalová

Karolína Chládková