Business vs. private journey – a company car in an executive officer’s garage

2. 7. 2015

On 31 May 2007 the Supreme Administrative Court issued verdict 2 Afs 185/2006-49 regarding journeys to work and the keeping of a company car in an employee's garage. It concerned the case of a company that kept its company cars in the garages at its executive officers' places of residence. They drove their company cars to work and back. This case was assessed by the tax authority as providing a vehicle to an employee for business and private purposes which meant the need for additional taxation amounting to 1% of the purchase price of the vehicle monthly. However, the judges expressed the view that the fact that the garages are at the executive officers' places of residence does not automatically mean that the executive officers' journeys from work to the garage are private journeys.

The subject of the lease contract that the executive officer of the limited liability company signed was the lease of premises for parking the company's vehicles in the garage of a family house owned by the executive officers. The parties to the contract were therefore the executive officer of the limited liability company and persons that were simultaneously the sole shareholders and the executive officers of the company in question. The cars were used for journeys from the place of residence to the company headquarters and the rent amount was set at CZK 200 monthly. Because the company does not have business premises at the place of residence of the executive officers and shareholders and these journeys were not recorded in the log book, the tax authority considered this situation to be a private journey and assessed the additional payroll tax at 1% of the vehicles' market entry price.

The Regional Court, however, determined that there is no legal provision that restricts a case where a taxpayer rents a garage due to a lack of other realistic options in order to protect its property and this garage is located other than at the company's headquarters. So the vehicles must be transported to the company's headquarters so that the company can use them for its business purposes, and only then can a business trip begin. The fact that this was done by the company's executive officers is irrelevant because if they did not bring the vehicles to the company's headquarters, the company would still have had to arrange for the vehicles to be transported by other means, which would probably be more expensive. The fact that the executive officers are commuting to work at the same time should be disregarded. These journeys must therefore be considered business trips. In addition, the Tax Office did not question the data in the log book. According to the extract from the Commercial Register the company's scope of business requires the use of vehicles.

The Supreme Administrative Court therefore inclined towards the reasoning of the Regional Court. In order to conclude that the vehicles were provided for private purposes further evidence would need to be produced from the log book or other technical documents. However, such findings were not carried out by the tax authority.

Ing. Klára Bedrunková

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