Taxation of winnings in competitions

Service-Tax

The revenues obtained for participating in the competition, depending on the source and amount, may be taxable or exempt. Practice shows that the issues related to the settlement of received awards cause problems for taxpayers. Check how the taxation of winnings in competitions looks like.

Pursuant to Art. 30 sec. 1 point 2 of the PIT Act, a flat-rate income tax in the amount of 10 is collected on income (income) from winnings in contests, games and mutual wagering or bonus sales related to bonus sales, obtained in a Member State of the European Union or another country belonging to the European Economic Area. % win or prize.

The basis for assessing this tax is the market value of the benefits received, calculated on the basis of market prices used in the trade of things or rights of the same type and species, taking into account, in particular, their condition and degree of wear, as well as the time and place of obtaining them.

However, if the services constituting prizes in the competition fall within the scope of the economic activity of the competition organizer, the value of the prize should be determined according to the prices applied to other recipients of the organizer. If the prizes are services purchased by the organizer, the income tax base will be the price of the purchased external service.

The monetary value of benefits in kind - as a rule - is determined according to the purchase price. Therefore, the winner's income should be increased by the gross amount, i.e. including VAT, because if the employee were to purchase them, he would have to pay the gross amount, not the net amount.

Taxation of winnings in competitions - the position of the tax authorities

A similar position was presented by the Director of the Tax Chamber in Katowice in a letter of December 31, 2008, No. IBPB2 / 415-1671 / 08 / BD, where we can read:

(...) If an employee had to buy a specific meal alone, he would be obliged to pay the price for which the catering service is sold, i.e. the gross price.

It follows from the above that the Company should include in the employee's income the gross value of the subsidy to the meal received by the employee as a gratuitous benefit (...).

If the winnings are of a cash nature, the payer, when withdrawing it, charges tax on the amount of the winnings. If the prize is non-cash, the winner must be requested to pay tax in cash prior to its release.

This method of accounting is also confirmed by the tax authorities, an example of which is the interpretation of the Director of the Tax Chamber in Warsaw, No.IPPB1 / 415-848 / 11-2 / EC, of ​​October 25, 2011, where we read:

(...) if it is a cash prize, the winners of the competition will receive the prize after deducting the flat-rate income tax of 10%, which the Company, as a tax payer, should charge the value of the prize and pay it to the account of the tax office, which it manages, within the time specified by law the head of the tax office competent according to the seat or place of business, if the payer does not have a registered office, at the same time sending the annual declaration according to the predefined formula (PIT-8AR).

In the case of material prizes, the winners of competitions, before issuing the prize, should pay the payer a flat-rate income tax in the amount of 10% of the prize value. The payment of the tax amount by the taxpayer may take the form of an actual payment or deduction from the amounts due from the employee's or contractor's remuneration with their consent. Nevertheless, it should be noted that the above issues are regulated by provisions other than tax law, interpretation of which is not authorized by the Minister of Finance.

Therefore, the Company, as in the case of cash prizes, will be required to pay the above tax to the account of the competent tax office and will draw up a PIT-8AR declaration, including the amount of the flat-rate income tax, in accordance with Art. 41 sec. 7 point 1 of the above-mentioned the act (...).

Example 1.

The taxpayer won a laptop worth PLN 5,000 in the competition. To collect it, he should pay the organizer PLN 500 (PLN 5,000 x 10%).

Contest organizers may pay tax for the awardee, however, the amount of tax paid by the payer is, as a rule, taxable income.

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Tax exemption for winning competitions

Pursuant to Art. 21 sec. 1 point 68 of the PIT Act, income tax free are, inter alia, the value of winnings in competitions and games organized and broadcast (announced) by the mass media (press, radio and television) and competitions in the field of science, culture, art, journalism and sports, as well as prizes related to the premium sale of goods and services - if one-off the value of these prizes or prizes does not exceed PLN 2,000; tax exemption of awards related to bonus sales of goods and services does not apply to awards received by the taxpayer in connection with his non-agricultural business activity, constituting income from this activity.

Thus, the received awards should not be taxed, as long as they jointly meet the following conditions:

  • their one-off value does not exceed PLN 2,000;

  • have been won in competitions organized and broadcast (announced) by the mass media (press, radio and television) and competitions in the fields of science, culture, art, journalism and sports, as well as awards related to bonus sales.

Both conditions must be met jointly, the fulfillment of only one of the above conditions, i.e. publishing on the website of the regulations specifying the rules of participation in the competition and the conditions for awarding the prize, does not entitle to apply the said exemption.

Such a position was presented, among others, by Director of the Tax Chamber in Łódź in the interpretation of February 8, 2012 (No.IPTPB1 / 415-276 / 11-4 / KO). We read in it that:

(...) to take advantage of the exemption, it is not enough that the competition is announced by the mass media enumerated in Art. 21 sec. 1 point 68 of the PIT Act (press, radio, television), but this provision also requires that the competition be organized and broadcast by the mass media, in the sense of institutions included in the so-called mass media.

Importantly, if the value of the prize exceeds PLN 2,000, the organizer collects tax on the entire prize. Such a position was confirmed by the Director of the Tax Chamber in Bydgoszcz in a letter of March 28, 2008, no. ITPB2 / 415-76 / 08 / BK:

(...) However, in a situation where the value of winnings in contests and games organized by the mass media exceeds PLN 760 (from 2018 - PLN 2,000, editorial note), the generated income will be taxed in full with 10% flat-rate income tax . The obligated entity (payer), pursuant to Art. 41 sec. 4 and art. 42 sec. 1 above of the Act, to be collected and paid - to the account of the tax office, which is directed by the head of the tax office competent according to the place of residence of the payer - income tax on the entire value of the award (win) and submission of the PIT-8AR form, is the entity paying the award. The competition organizer does not have to submit a monthly declaration of winnings. The annual declaration is submitted to the tax office according to the place of residence of the payer (...).

Taxation of winnings in competitions for employees

Therefore, income from the employment relationship is any income that is caused by the employment relationship.Therefore, when determining the taxation of income from winnings in contests, one should take into account the circumstances of whether the award can be obtained only by an employee or also by another person.

In a situation where the competition for employees is organized by the employer, the award is closely related to the work performed under the employment relationship between the employees.

Therefore, it should be concluded that the value of awards obtained by employees under competitions is not subject to 10% flat-rate income tax. These benefits constitute income for them from the employment relationship, subject to taxation with 18% or 32% income tax, and as a consequence, employers are responsible for this obligation as a payer.

A similar position was presented by the Director of the Tax Chamber in Poznań in the individual ruling of May 5, 2015, ref. No. ILPB1 / 4511-1-166 / 15-2 / AP, in which we read:

(...) the value of the awards obtained by the Applicant's employees under the projects referred to as incentive contests is not subject to 10% flat-rate income tax. These benefits constitute income for them from the employment relationship, subject to taxation with 18% or 32% income tax, and as a consequence, the Applicant is subject to the obligations of the payer under Art. 31, 32 and art. 38 of the Personal Income Tax Act (...).