If the rally car is used for promotional purposes, expenses can be recognised as costs

In the latest requests for interpretations, entrepreneurs ask the Director of the National Tax Information about the possibility of including expenses related to a rally car as tax deductible costs. The Director of KAS (interpretation no. 0111-KDIB2-1.4010.35.2019.8.BJ) refers, in this respect, to a case that ended with a judgment of the NSA (file no. II FSK 533/20).

In the case that came to the NSA’s attention, the taxpayer planned to purchase a rally car. The company’s object was, among other things, the production of car parts and components. The car was to be used exclusively for participation in sports competitions (rallies) organised (by entities other than the taxpayer). The car was to be a promotional (advertising) tool for the taxpayer (there was to be an advertisement with the company’s logo on the car). The participation of the car in rallies was to constitute marketing and promotional support for the taxpayer. The entrepreneur was also to receive a sponsorship licence approved by the Polish Motor Association, which was to emphasise the use of the rally car for promotional and advertising purposes.

According to the NSA, the company’s action was aimed at increasing its recognisability, encouraging as many customers as possible to its offer and, consequently, potentially increasing sales and revenue. Such action meets the premise of purposefulness of incurring the expense and the possibility of classifying it as a cost (which results from Article 15 Section 1 of the CIT Act). The company will also be entitled to include insurance premiums for the rally car in tax deductible costs up to the amount resulting from Article 16 par. 1 item 49 of the CIT Act and to include all expenses connected with the use of the car in these costs.

– The NSA’s position fully confirms the interpretation of classifying given expenses as costs. For this to be possible, the prerequisites from the Act must be met. Deductible costs are only such expenses that meet the following conditions jointly: they were incurred by the taxpayer, in connection with his/her business activity; they are of a definite nature and are properly documented; their incurring was aimed at obtaining revenue or preserving or securing a source of revenue (the so-called premise of purposefulness of costs); they were not listed in the closed catalogue of expenses not constituting tax deductible costs, contained in Article 16(1) of the CIT Act – explains Łukasz Kupryjańczyk, tax adviser, partner at Thedy & Partners.