The Controversial Tax Perspective on the Mandatory Use of Logbooks

The Controversial Tax Perspective on the Mandatory 

Use of Logbooks

Alex Tabacu, Senior Tax Partner

Madalina Gatu, Tax and Accounting Partner 

Voicu Financial & Tax Advisers

The obligation for sales and purchasing agents to use logbooks has been and still is a controversial issue. There have even been tax inspections in which, in a detailed form of the use of such vehicles by persons other than sales and purchasing agents, the mandatory use of logbooks by sales and purchasing agents was claimed.

In our view, the spirit of the law was to have a simple regulation that would, on the one hand, limit abuse by taxpayers in general, and, on the other hand, to exclude from these limitations certain categories of use for which the limitation of deductibility is not necessary (e.g., vehicles used by sales and purchasing agents, vehicles used for paid transport, including taxis, vehicles for driving schools), particularly due to the nature and specificity of the service provided.

Thus, we are of the opinion that:

• the preparation of a logbook would be mandatory in cases where the vehicle is used 100% for business purposes, and this must be proven in accordance with tax regulations.
• preparing a logbook would not be necessary in the case of sales and purchasing agents, where 100% business use of the vehicle is presumed without the need for proof, unless there is evidence of abusive practice.
• from a tax perspective, the logbook, although not mandatory, could be useful even for sales and purchasing agents, if, in addition to business trips (e.g., delegations to various cities in the country, trips to customers, trips to suppliers, trips to the bank, trips for information and research purposes, etc.), there are also residual trips for private purposes, precisely in order to prove this residual nature and the absence of abusive practices.
• Legal framework

According to the provisions of Law 227/2015 on the Fiscal Code, as amended and supplemented, Article 25 (3), expenses are fully deductible for vehicles used by sales and purchasing agents.

“The following expenses have limited deductibility: … l) 50% of expenses related to motor vehicles that are not used exclusively for economic activity, with a maximum authorized mass not exceeding 3,500 kg and no more than 9 passenger seats, including the driver’s seat, owned or used by the taxpayer. These expenses are fully deductible in situations where the vehicles in question fall into any of the following categories: … 2. vehicles used by sales and purchasing agents”.

 The methodological rules for the application of the Tax Code indicate: (i) on the one hand, that the deduction rules subject to tax limitation are those provided for in point 68, where sales and purchasing agents are presumed to use the vehicle for business purposes, and (ii) on the other hand, that the justification for granting full deductibility is based on financial accounting documents and the preparation of a roadmap without differentiating between categories of motor vehicles, even if they supplement an article in the Tax Code in which this distinction is made and where vehicles used by sales and purchasing agents are one of the exceptions.

“In accordance with the methodological rules for the application of the tax code, point 16: “For the purposes of the provisions of Article 25(3)(l) of the Tax Code, the rules for deduction, the terms and expressions used, the conditions under which motor vehicles subject to tax restrictions are those that are subject to tax restrictions, the rules for deduction, the terms and expressions used, the conditions under which motor vehicles subject to tax restrictions are those that are subject to tax restrictions, the rules for deduction, the terms and expressions used, the conditions under which motor vehicles subject to tax restrictions are those that are subject to tax restrictions (3) letter l) of the Tax Code, the rules of deduction, the terms and expressions used, the conditions under which motor vehicles subject to tax restrictions are those provided for in point 68 of the methodological rules given in the application of Article 298 of Title VII “Value Added Tax” of the Tax Code.

 The justification for the use of vehicles, for the purpose of granting full deductibility in the calculation of the tax result, shall be made on the basis of financial and accounting documents and by drawing up a logbook which must contain at least the following information: the category of vehicle used, the purpose and place of travel, the kilometers traveled, and the specific fuel consumption per kilometer traveled.“

As mentioned above, according to the provisions of Law 227/2015 on the Fiscal Code, Article 298, and its implementing rules, point 68, the limitations on value added tax (and, in a broader context, those specific to income tax) do not apply to sales and purchasing agents.

 “(1) By way of derogation from the provisions of Article 297, the right to deduct tax relating to the purchase, intra-Community acquisition, import, rental, or leasing of motor vehicles and the tax related to expenses related to vehicles owned or used by the taxable person, if the vehicles are not used exclusively for economic activity. 

… (3) The provisions of paragraph (1) shall not apply to the following categories of motor vehicles: … b) vehicles used by sales and purchasing agents.”

The methodological rules for applying the tax code, point 68, also define in detail what is meant by a vehicle used by sales and purchasing agents:

“(5) In the case of vehicles referred to in Article 298(3)(b)-(f) of the Tax Code, the tax related to the purchase, intra-Community acquisition, import, rental, or leasing and the tax related to expenses related to these vehicles is deductible according to the general rules provided for in Articles 297 and Articles 299-301 of the Fiscal Code, the 50% limitation on the deduction of the tax not being applicable, their use for personal purposes being considered negligible except where evidence of abusive practice can be provided. In the situation provided for in Article 298(3)(a) of the Tax Code, it is mandatory for the taxable person to use the vehicle exclusively for emergency services, security and protection services, and courier services in order to deduct the tax related to the purchase, intra-Community acquisition, import, rental, or leasing, and the tax related to expenses related to these vehicles, according to the general rules provided for in Article 297 and Articles 299-301 of the Tax Code. However, in the case of vehicles provided for in Article 298(3)(a) of the Tax Code, the limitation of the right to deduct tax does not apply if they are also used for other economic activities of the taxable person, including for the activities of the taxable person’s employees. (3)(a) of the Tax Code, the limitation on the right to deduct tax shall not apply if they are also used for other economic activities of the taxable person, including the activities referred to in Article 298(3)(b)-(f) of the Tax Code. 

b) vehicles used by sales agents are vehicles used in the course of a taxable person’s business by its employees who are mainly engaged in market prospecting, merchandising, negotiating sales terms, selling goods/services, providing after-sales services, and monitoring customers. The exercise of the right of deduction in accordance with the provisions of Art. 298 para. (3) letter b) of the Fiscal Code is limited to a maximum of one vehicle used by each sales agent; 

c) vehicles used by purchasing agents are vehicles used in the course of a taxable person’s business by its employees who are primarily engaged in negotiating and concluding contracts for the purchase of goods and services, maintaining a database of potential or existing suppliers, preparing administrative documents for purchases, analyzing purchase requests and proposing the best offer, monitoring supplier performance to achieve quality, cost, and deadline objectives. The exercise of the right of deduction in accordance with the provisions of Article 298(3)(b) of the Tax Code is limited to a maximum of one vehicle used by each procurement agent.

Taking into account all these regulations, in our opinion, the following considerations can be made:

• as a precautionary measure, drawing up a roadmap is useful in all cases, but the question is whether, in the case of sales and purchasing agents, drawing up a roadmap is also mandatory;
• as a general rule, the deductibility of costs should be limited for motor vehicles that are not used exclusively for economic activity;
• as an exception, however, in the case of motor vehicles used by sales and purchasing agents, there is a presumption of exclusive use for business purposes, a presumption generated by the very nature of their activity and described in detail in the Tax Code. Therefore, we consider that exclusive use for business purposes for these types of agents should not be proven.

If we were to consider the hypothesis that the spirit of the law was that in all cases it would be necessary to prove full use for business purposes, then it would have been unnecessary to regulate exceptions and describe sales and purchasing agent services in detail. It would have been sufficient to have only a general rule that if the 100% deductibility regime is to be used, a roadmap is required regardless of the nature of the services and/or vehicles used. It is true that this presumption in the case of sales and purchasing agents is not explicitly included in the title relating to income tax, but only in the title relating to VAT. However, at the same time, the implementing rules of the article in the chapter on income tax specify that the rules for deducting income tax are those mentioned in the implementing rules of the article in the chapter on VAT, which, in our opinion, unifies the two regulations.

Taking these aspects into account, we consider that the presumption of exclusive economic use of motor vehicles driven by sales and purchasing agents should apply both to the full deductibility of costs and to the related value added tax.

In the case of vehicles used by sales and purchasing agents, the right to deduct VAT is not limited, but the general rule on full deductibility applies, without the need for a roadmap in this regard. There is one exception: where evidence of abusive use of the vehicle for personal purposes can be provided. In other words, it is assumed that such vehicles are used entirely for economic purposes, with any personal use being negligible.

The Tax Code specifies that expenses related to vehicles used by sales and purchasing agents are fully deductible. The provisions relating to the 50%-50% limitation do not apply to the costs associated with these categories of vehicles.

Based on these considerations, in our opinion, in order to grant full deductibility of the costs and value added tax related to vehicles driven by sales/purchasing agents, it would not be necessary to submit a roadmap, as full use for economic purposes is presumed, and the granting of full deductibility is explicitly consented to by the text of the tax code itself. Of course, in this context, the qualification or non-qualification of a person as a sales or purchasing agent and the arguments and evidence provided in this regard, as well as the taxpayer’s field of activity, become very important.

At the same time, the implementing rules of the article in Title II on income tax explicitly state that: “justification for the use of vehicles, for the purpose of granting full deductibility in calculating the tax result, shall be based on financial and accounting documents and by drawing up a roadmap,” without distinguishing between those who normally apply the 50% limitation and can only apply full 100% deductibility as an exception if they submit a logbook, and those who, by the very content of the article, are exempt from the application of the 50% – 50% limitation (the case of sales/purchasing agents).

According to legal standards, in principle, methodological rules cannot add to the text of the law or change its meaning but can only (and indeed must) explain it. However, the existence of the text in the implementing rules regarding the need for a logbook that is not nuanced and differentiated by vehicle category may also lead to the adverse interpretation that the presence of a logbook would also be necessary in the case of sales/purchasing agents.

In this context, although our opinion is that there are sufficient grounds to consider that road sheets would not be necessary in the case of sales and purchasing agents, we must admit that the legislation is slightly ambiguous and even contradictory in the two matters of (i) the deductibility of costs and (ii) the deductibility of the related VAT.

Given that tax authorities may take an overly cautious approach in defending the public interest, we do not recommend adopting any decision based solely on these interpretative considerations, but recommend that, before waiving the roadmaps drawn up by sales/purchasing agents, you request a written opinion from the Ministry of Finance, the entity that has regulated these issues and is best placed to interpret them.