Difference between parking service and rental service: when is VAT deductible?
For professionals or astute VAT enthusiasts, the question may rightly be raised in relation to the VAT deduction rules for parking: how can the use of a parking space for rent or a parking service be distinguished for the purposes of the VAT deduction prohibition? This is the question we would like to explore in this article.
Pursuant to Section 86 (2) (b) of the VAT Act, no tax exemption should be applicable to the rental of a vehicle parking space, so this rental should be considered a taxable supply of services. Furthermore, given that the vehicle parking space rental is not a service covered by the prohibition on VAT deduction under Section 124 of the VAT Act, the general VAT deduction rules (Sections 120 and 121) of the VAT Act should apply as to whether the input VAT may be deducted by the recipient of the service. Thus, to the extent that a taxable person uses a service in such a capacity for the purpose of performing a taxable supply of goods or services, he is entitled to deduct from the tax payable by him the tax which another taxable person has charged to him in connection with the use of the service.
On the other hand, under Article 124(2)(e) of the VAT Law, input VAT on parking services may not be deducted even where the taxable person uses those services for his own taxable supplies of goods or services. The quoted legal provision explicitly emphasises that the prohibition of VAT deduction for parking services is independent of Articles 120 and 121 of the VAT Act.
In the light of the above, it is therefore essential that the taxable person is able to distinguish whether a parking is considered as the use of a parking service or the rental of a parking space.
The answer to this distinction may seem simple: if one parks in a public parking space, then they are using a parking service, but if one rents a garage in an office building for a long period of time, then they are using a rental service.
The above distinction seems logical, but what if one parks in a guarded private car park occasionally, or on a long-term basis, or if one leaves his or her car in a shopping centre car parking? What general principles should therefore be followed in order to distinguish parking space rental from "normal" parking?
According to the definition of leasing (rental) arrangement laid down in the VAT Act (Article 259, point 4), in addition to a legal relationship based on a lease contract, any other legal relationship during which the lessee pays or is obliged to pay the lessor all or most of the consideration for the temporary use of the goods (e.g. real estate) should also be considered a lease.
This definition, therefore, covers not only the classic rental service, but also parking services, since the concept of temporary use includes not only long-term use, but also use for a few minutes or hours. It is, therefore, not possible to distinguish, on the basis of the time of use, between the two types of service, which should be treated as separate types for VAT deductibility purposes.
Based on our experience, the tax authorities' position on this issue is that the degree of supervision related to the rental service should be considered as a delimitation criterion for the separation of the two types of services.
Consequently, the use of a parking service subject to the prohibition of VAT deduction is considered to be the use of a parking space under the direct supervision and/or guarding of the service provider. This supervision may take the form of the presence on the premises of the service provider, or his employees, or the presence of automatic equipment capable of recording the exact time and place of use.
In the case of a service which is a rental service for VAT deductibility purposes, the degree of supervision is less, the lessor does not wish to monitor continuous use and does not employ staff to do so, and, therefore, the charge for use does not depend on actual use, i.e. whether the lessee uses the service at all in a given billing period. So, for example, in the case of the use of an underground car park in an office building, even if the access system is in principle capable of accurately monitoring usage, it is still a rental, since in this case the registration of entry and exit is not within the scope of the accurate monitoring of usage and the determination of the charge on that basis.
Therefore, when deciding for VAT deductibility purposes whether a parking service is used or a parking space is rented, the primary criterion is the degree of supervision and not the duration of the service.
Of course, in practice, it is easy to see that a longer-term rental is most likely to be associated with less supervision, and that shorter-term parking will meet the criterion of more supervision, which, in turn, triggers a prohibition of VAT deduction. But, of course, it cannot be ruled out that in some cases the reverse will be true, and it may also be subjective what is a short or long term, so it is always necessary to consider all the circumstances of the particular case in order to act appropriately for VAT deduction purposes.
28, October 2021
The author of this article is Edina Bély, tax advisor of VGD Hungary.
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