Tax Impact of the Purchase of a Vehicle – from a Value-added Tax Perspective

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Many companies need vehicles to transport goods, pick up clients or negotiate traffic. However, there will be different tax impacts of such services based on the model of the vehicles, the purpose of their use, and leasing or purchasing agreements. This article will introduce these factors and come up with some conclusions and suggestions.

Vehicle for Passengers

According to the regulations, the input of VAT derived from ‘Passenger Cars for Personal Use’ is not deductible for the output VAT.

Many passenger cars are in fact provided to executives for personal use and should be included in this package as part of wages. If the company pays wages to the executive directly, the application of input VAT will not be necessary. Therefore, the tax regulation denies the input of VAT for purchasing passenger cars for personal use.

However, the Taiwan tax authority denies all input VAT derived from the purchase of passenger cars. This practice is somewhat unreasonable, because it also denies passenger cars for company use and exceeds the scope defined by the tax regulations. If the tax payers insist on reporting this input for VAT, they need to prove that the car is for company use only and that this is very difficult.

Vehicle for Cargoes

Since trucks are not usually likely to be regarded as an executive benefit, the revived input VAT will be deductible.

Conclusion & Suggestions

For companies which need a passenger car for company use, we have the following suggestions:

  • SUV
    In addition to passenger cars and trucks, SUVs can be used for both purposes. The tax authority usually accepts input VAT derived from SUVs if the vehicle license states that this SUV is intended for both passengers and cargoes.
  • Leasing
    Considering the restrictions stated above, leasing a car can be an alternative. The payment will be converted to rent and the derived input VAT is deductable, whether or not the leasing car is for passengers or cargoes. Please note that the leasing mentioned includes only an operating lease but excludes a financial lease.

According to fiscal science, a tax should be ‘neutral’ and not interfere with the best resource allocation in a free market. However, the tax mechanism discussed above may add value to SUV manufacturers and leasing companies. Although refusing all input VAT derived from ALL passenger cars may be controversial, considering the time, effort, and money that can be spent arguing with the tax authority, most companies still choose to make use of the favorable current situation to try to advance their interests.

Image Credit: Honda CR-V

****Disclaimer****

Our advice, comments, or analysis was made based on the relevant laws, regulations, and rulings are in effect and public available as of the date of this review and the facts and assumption given by the Client. The authorities are subject to change, which may be retroactive in their effect. We undertake no obligation to advise the Client of any changes or the developments that may affect our advice, comments, or analysis in the review or any matters set forth herein. Any changes to the authorities subsequent to the date of this review may affect the validity of the comments.

james, Chang

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