Marketing tricks, related with VAT, sell cars

cars.novacon.bulgariaProbably everyone has come across car dealers’ advertisements, claiming that the advertised cars all tax (VAT) credit to be used by the buyers. Since the tax credit right is a great marketing message, traders also save the client the other requirements of the Value Added Tax Act (VAT Act) in relation to the tax credit right.

What do the buyers usually do in such cases? – they buy the car and exercise the tax credit right. In addition, they apply the tax credit right also for all maintenance cost, repair, improvement and operation (servicing, fuel, oil, etc.). And all is fine and perfect until the next tax audit.

What do tax collectors usually do in such cases? – during the tax audit, they investigate whether the car is used for the company’s activities, which (on the other hand) are used for performing VAT taxable deals (sales); whether the car is used for personal purposes by the manager or others persons, and if they find some inconsistences, tax auditors refuse tax credit on both the car cost and on any subsequent maintenance, repair, improvement and operation. Inconsistences that can be identified during a tax audit include: the car is used for personal use; the car is not used to the VAT taxable activity of the company; the car is used for taxable activity of the company, but the company cannot prove it (e.g. no travelling logs, no fuel invoices available, etc.); the car is formally used for VAT taxable activity of the company, but in fact the business of the company does not need this car or too many cars are purchased (rented), which do not correspond to the amount of the taxable company activities; etc.

A tax-correct car dealer’s advertisement should look like (even though the marketing strength of the message is significantly reduced) – “… the car is offered with a VAT credit right, if you use it for taxable activities of your company and you will also need to fill-in traveling logs… :).”

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