Semantics delays new law for leasing sector
That process was well underway when earlier this month, the Finance Ministry's attempts to finish the draft law were sidetracked. It wasn't apparently the concept of leasing that befuddled, but a word. It seems there is no equivalent in Polish for "leasing."
"Indeed there are problems with this leasing act," said Wacław Kowalkowski, a specialist in the Finance Ministry's tax department. He said one issue is that additions to the civil code should ideally be in Polish.
Now, the law, which was already being delayed because of work on tax proposals, is likely to be further stalled because lawyers don't want to incorporate foreign terminology into the civil code, confirmed Iwona Smith, manager of the tax and legal department at PricewaterhouseCoopers.
Leasing agencies passed a milestone last year that allowed them to build their business over the short term, agency executives said. Last August, the Finance Ministry adopted guidelines that set a framework for development. Although those guidelines are important, they are not as good as law, Smith said. So while legal specialists and industry lobbyists are set to square off over linguistic issues in coming weeks, the longer-term stability of the sector is on hold, industry watchers said.
Leasing is similar to renting, offering businesses a route to obtaining equipment over a fixed period without sinking cashflow into expensive assets. The problem until recently is that the sector has been hampered by stringent tax regulations that have thwarted development.
But in two letters disseminated a year ago to tax offices nationwide, the ministry approved measures that lowered the cost of leasing assets, which would encourage business, and that lowered financing costs for leasing companies, which would encourage investment in the sector.
"I would say we have quite (a) comfortable situation," said Andrzej Płochocki, president of the Conference of Leasing Companies, an association of 52 firms. "Those two explanation letters simply solved most of our problems."
Clients can now be sure that leases will be treated as a business expense on their books, and the leasing company will handle the tax cost at the contract's expiration. Previously tax offices had a tendency to interpret a lease as a sale and hence shift the tax burden to the client, making the whole business of leasing less viable, Smith said.
Additionally, financing costs have been lowered. Presently, agencies can sign installment payments over to a bank, essentially exchanging customer contracts for bank loans, which can be used to purchase assets. This practice isn't new, just the way the tax office treats it.
Before the ministry edict, confusion reigned through tax offices over how to tax these types of transactions, Smith said. Now, it's clear. The transaction is treated as a credit and not income, and thereby not subject to taxation, she said.
However, the ministry edicts, while welcome, do not offer the same guarantee as an actual amendment to the civil code to enshrine the opinions in law. And although the provisions have established rules of practice for the sector, much remains to be done to set a long-term framework for development such as updates on value-added tax (VAT) treatment, double taxation on passenger cars, depreciation caps on investments and cross-border leasing, industry members said.
For example, the draft law now sidelined contains an update on VAT treatment of finance leases, under which clients can depreciate the leased asset. Currently, these are treated as sales, and thus subject to a lump sum VAT payment for the value of the lease contract. Under the proposed law, VAT could be paid by installments. Furthermore, the Finance Ministry has given the nod to lifting a "double taxation," resulting in payments that exceeded a car's sticker price by almost 50%.
Not dealt with in the draft law is removal of a cap of ECU 10,000 (zł. 40, 000) that leasing companies can spend on passenger cars and fully depreciate the asset. The existing ban on cross-border leasing will have to be addressed by European Union (EU) membership rules, Płochocki said.
"Indeed there are problems with this leasing act," said Wacław Kowalkowski, a specialist in the Finance Ministry's tax department. He said one issue is that additions to the civil code should ideally be in Polish.
Now, the law, which was already being delayed because of work on tax proposals, is likely to be further stalled because lawyers don't want to incorporate foreign terminology into the civil code, confirmed Iwona Smith, manager of the tax and legal department at PricewaterhouseCoopers.
Leasing agencies passed a milestone last year that allowed them to build their business over the short term, agency executives said. Last August, the Finance Ministry adopted guidelines that set a framework for development. Although those guidelines are important, they are not as good as law, Smith said. So while legal specialists and industry lobbyists are set to square off over linguistic issues in coming weeks, the longer-term stability of the sector is on hold, industry watchers said.
Leasing is similar to renting, offering businesses a route to obtaining equipment over a fixed period without sinking cashflow into expensive assets. The problem until recently is that the sector has been hampered by stringent tax regulations that have thwarted development.
But in two letters disseminated a year ago to tax offices nationwide, the ministry approved measures that lowered the cost of leasing assets, which would encourage business, and that lowered financing costs for leasing companies, which would encourage investment in the sector.
"I would say we have quite (a) comfortable situation," said Andrzej Płochocki, president of the Conference of Leasing Companies, an association of 52 firms. "Those two explanation letters simply solved most of our problems."
Clients can now be sure that leases will be treated as a business expense on their books, and the leasing company will handle the tax cost at the contract's expiration. Previously tax offices had a tendency to interpret a lease as a sale and hence shift the tax burden to the client, making the whole business of leasing less viable, Smith said.
Additionally, financing costs have been lowered. Presently, agencies can sign installment payments over to a bank, essentially exchanging customer contracts for bank loans, which can be used to purchase assets. This practice isn't new, just the way the tax office treats it.
Before the ministry edict, confusion reigned through tax offices over how to tax these types of transactions, Smith said. Now, it's clear. The transaction is treated as a credit and not income, and thereby not subject to taxation, she said.
However, the ministry edicts, while welcome, do not offer the same guarantee as an actual amendment to the civil code to enshrine the opinions in law. And although the provisions have established rules of practice for the sector, much remains to be done to set a long-term framework for development such as updates on value-added tax (VAT) treatment, double taxation on passenger cars, depreciation caps on investments and cross-border leasing, industry members said.
For example, the draft law now sidelined contains an update on VAT treatment of finance leases, under which clients can depreciate the leased asset. Currently, these are treated as sales, and thus subject to a lump sum VAT payment for the value of the lease contract. Under the proposed law, VAT could be paid by installments. Furthermore, the Finance Ministry has given the nod to lifting a "double taxation," resulting in payments that exceeded a car's sticker price by almost 50%.
Not dealt with in the draft law is removal of a cap of ECU 10,000 (zł. 40, 000) that leasing companies can spend on passenger cars and fully depreciate the asset. The existing ban on cross-border leasing will have to be addressed by European Union (EU) membership rules, Płochocki said.
