Leasing - initial payment

When taking a car into operational leasing, an entrepreneur must take into account that he will be required to incur various types of expenses related to the conclusion of the leasing contract, such as leasing installments, insurance fees and, most importantly, an initial payment, otherwise known as the initial rent or zero rent. The last of the listed items is a one-time cash benefit of the lessee for the lessor for putting the leased asset into use and receiving benefits on this account. Accounting for it in tax costs raises many doubts among taxpayers.

Initial lease payment - current position

Until now, two positions could be distinguished among the tax authorities concerning the method of settling the initial leasing fee. The first of them allowed for a one-off recognition of the fee in tax costs, the second, in turn, referred to its proportional division to the duration of the contract. The records depended on the nature of the initial fee.

Initial lease payment - current position

Due to numerous court judgments, the Minister of Finance decided to adopt a uniform position regarding the settlement of the initial leasing fee, which allows for a one-off recognition of the fee as costs on the date it is incurred. In a letter dated December 5, 2011, the Income Tax Department announces:

The DD Department informs, in favor of the jurisprudence presented by administrative courts, that the initial leasing fee should be included in tax costs once when incurred, and not proportionally to the duration of the leasing contract. A characteristic feature of these judgments is the recognition that the initial leasing fee is a non-returnable spontaneous fee, not assigned to individual leasing installments, while its incurring is a necessary condition for the implementation of the leasing contract. This fee is a one-off expenditure related to the conclusion of the leasing contract, and, consequently, the release of the subject of the lease itself.

One of the judgments contributing to the above position is the judgment of the Provincial Administrative Court in Kraków of September 23, 2009, ref. No. act I SA / Kr 1076/09, in which we read that in the event that the initial leasing fee is a spontaneous payment not assigned to individual leasing installments, and its incurring is a necessary condition for the implementation of the leasing contract, it should be settled on the date the cost is incurred, because it cannot be assumed that it relates to the period for which the contract has been concluded, and this period must exceed the tax year. In the light of Art. 22 sec. 5c u.p.d.o.f. only when indirect costs relate to a period exceeding the tax year, they are subject to settlement proportionally to the length of the period they relate to (...).

Another, equally important for the case, is the judgment of the Supreme Administrative Court of November 18, 2011, file ref. II FSK 864/10:

(...) The Supreme Administrative Court approves the position of the Court of first instance regarding the moment of qualifying initial and zero rents as indirect tax deductible costs, which, however, cannot be related to revenues generated in a period exceeding the tax year. The issue of the legal and tax qualification of initial rents has already been considered by the Supreme Administrative Court, which consistently assumed that the initial fee, constituting the financing party's remuneration for preparatory activities for the release of the leased asset, is one-off tax costs on the date it is incurred (see judgments of the Supreme Administrative Court). of March 19, 2010, II FSK 1731/08, of March 23, 2010, II FSK 1733/08, of January 19, 2011, II FSK 1546/09, and of May 17, 2011, II FSK 59/10). The initial fee cannot be linked directly to specific revenues, nor can it be considered that it applies to the entire period, exceeding the tax year, for which the leasing contract was concluded, because it does not relate to the performance of the leasing contract itself, but conditions its conclusion and release of the leased asset. The Supreme Administrative Court, in the panel hearing this case, shares the views expressed in the above-mentioned judgments (...).

To sum up, the taxpayer may, as a rule, recognize the initial payment, initial rent or zero rent as a one-off tax cost on the date it is incurred.