Supercars as business expenses

The managing director (MD) of a limited liability company (GmbH) operating in the automotive sector sought to claim another Porsche, with a list price of €400,000, as a business expense in addition to a Porsche Cayenne, a Porsche 911, and a Mercedes E-Class. The Baden-Württemberg Fiscal Court ruled in his favor.

A supercar made entirely of carbon-fiber-reinforced plastic was the vehicle a managing director sought to claim as a business expense. The special lease payment amounted to €80,000 gross, and the lease payments due over three years totaled €207,000. He subsequently purchased the vehicle for €205,000 and was able to sell it for €363,000. According to the apparently proper logbook, only between 18% and 38% of the mileage was claimed as business expenses during the relevant period of use. However, this also displeased the tax auditor. He refused to recognize the expenses because the vehicle was a special model suitable for racing, which affects the taxpayer’s lifestyle and, furthermore, is considered unreasonable according to generally accepted standards.

Tax Court Rules in Favor of Taxpayer

The judges hearing the case had to determine whether the expenses could be classified as non-deductible business expenses. This category includes expenses for hunting or fishing, sailing and motor yachts, as well as similar purposes. The latter also includes race cars, unless the associated costs can be proven not to have been incurred for entertainment purposes, to entertain business associates, for leisure activities, or for sporting pursuits. The court did not find such private reasons in this case.

However, the court also did not consider the costs to be unreasonable. This is the case when a prudent and conscientious business owner would also have incurred the expenses in light of the expected benefits and costs. All circumstances of the individual case must be taken into account in the reasonableness assessment. In addition to the size of the company, the level of long-term revenue, and profits, the customary practices in comparable businesses must be taken into account when assessing the significance of entertainment expenses for business success. After evaluating all these criteria, the judges found no unreasonableness and recognized the costs as business expenses.

But be careful

The judges expressly emphasize that there is no general blanket approval in such contentious situations; each individual case must be examined here.