Sale of a car and costs of OC and AC insurance in tax-deductible costs

The principles of concluding and executing agreements for mandatory third-party liability insurance (OC) for motor vehicle owners are regulated by the Act of May 22, 2003, on compulsory insurance, the Insurance Guarantee Fund, and the Polish Motor Insurance Bureau (Journal of Laws of 2013, item 392, as amended).

According to its provisions, in the event of transferring the ownership right of a car for which the current owner has entered into an OC insurance agreement, the rights and obligations of the previous owner arising from that agreement are transferred to the acquirer.

The previous owner of the car is obliged to:

• provide the acquirer with confirmation of the conclusion of the OC insurance agreement for the vehicle.
• notify the insurance company in writing (within 14 days from the date of transfer of the vehicle's ownership) about the sale and provide the insurer with the acquirer's details.

On the other hand, the acquirer of the car has the right to:

• continue the existing OC insurance agreement until its expiration date or
• terminate the existing OC agreement in writing (in which case it will be terminated on the date of termination) and enter into a new insurance agreement.

If the acquirer of the car does not exercise their right to terminate the existing OC insurance agreement, the insurance company may recalculate the due premium for the insurance coverage, starting from the date of transfer of the vehicle's ownership. This recalculation takes into account any applicable discounts and surcharges according to the current premium rates.

On the other hand, if the acquirer terminates the existing OC agreement, the previous car owner is entitled to a refund of the premium for the unused insurance period.

These principles are derived from Article 31(1) and (2), Article 32(1), and Article 41(1)(3) of the aforementioned Act on compulsory insurance.

Regarding voluntary comprehensive motor vehicle insurance (AC), the provisions of the Civil Code concerning insurance contracts apply.

According to Article 823 §1 of the Civil Code, the possibility for the acquirer of the car to continue the AC insurance agreement concluded by the previous owner depends on obtaining the insurer's consent unless the insurance contract or general terms and conditions state otherwise. If the rights under the insurance contract are not transferred to the acquirer, the existing AC insurance expires at the time of selling the car (Article 823 §3 of the Civil Code). In such a case, the seller is entitled to a refund of the premium for the period of unused insurance coverage (Article 813 §1 of the Civil Code).

According to the general definition of tax-deductible costs, expenses that are incurred to generate income or to preserve or secure the source of income can be classified as costs of obtaining revenue, except for costs listed in Article 23 of the Corporate Income Tax Act and Article 16(1) of the Personal Income Tax Act. These expenses should be functionally related to the business activity carried out by the entrepreneur, rational, objectively justified from an economic point of view, and adequately documented.

Under the income tax provisions, refunded expenses that were not classified as costs of obtaining revenue are not included in the income. This is under Article 14(3)(3a) of the Corporate Income Tax Act and Article 12(4)(6a) of the Personal Income Tax Act. However, if the refund received from the insurer for OC and AC insurance premiums is related to expenses that were classified as tax-deductible costs, the refunded amount should be included in taxable income.

Autor: Monika Mnichowska, Biuro Rachunkowe Bydgoszcz