Fruit and vegetables for employees - are they income?

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We run a small sports studio where fitness classes are conducted. For our employees - personal trainers - we would like to introduce the possibility of using fresh fruit and vegetables. Access to them will be unlimited for each employee. Should fruit and vegetables donated to employees be recognized as income from gratuitous benefits?

Amelia, Szczecin

 

Pursuant to Art. 12 sec. 1 of the Personal Income Tax Act, all kinds of cash payments and the monetary value of benefits in kind or their equivalents, regardless of the source of financing these payments and benefits, are considered revenues from a business relationship, employment relationship, homework and a cooperative employment relationship, in particular: basic salaries, remuneration for overtime, various types of bonuses, awards, equivalents for unused leave and all other amounts, regardless of whether their amount has been determined in advance, as well as cash benefits paid for the employee, as well as the value of other unpaid leave partially paid benefits or benefits.

Pursuant to Art. 31 above Acts, natural persons, legal persons and organizational units without legal personality, commonly known as "work establishments", are obliged as payers to calculate and collect income tax advances during the year from persons who obtain income from these establishments from a service relationship, employment relationship, homework or a cooperative employment relationship, cash benefits from social insurance paid by work establishments, and in labor cooperatives - payments for participation in the balance surplus.

Example 1.

In June, the employer additionally provided his employees with sports clothes of which he is a producer. Their value was PLN 200. For the transfer of clothes, the employee's gross remuneration will be increased by PLN 200 as a free benefit.

Free benefits for employees - what do they mean?

The legislator has not defined what is meant by the term "gratuitous benefit". They should be understood as such types of activities of one entity that do not meet with mutual and equivalent performance from the entity being the recipient (recipient) of such free benefits. Thus, when making a grammatical interpretation, a "gratuitous service" should be considered a service "which does not require a fee, is free of charge" (Nowy Dictionary Języka Polskiego, PWN, Warsaw 2003). As a result, the emergence of income from free benefits should be considered whenever the taxpayer receives goods or rights or other benefits without the obligation to provide mutual benefit, or the possibility of using the goods or rights.

In everyday life, any transfer of additional benefits than the salary expressed in money may mean additional income for the employee, which the employer is obliged to recognize as part of his remuneration and tax.

In practice, determining the price of a given benefit can be difficult. The value of income from free benefits is determined on the basis of art. 11 sec. 2a of the Personal Income Tax Act. According to the norm of this provision, the value of income from gratuitous benefits is determined as:

  • if the subject of the service are services falling within the scope of the economic activity of the service provider - according to prices applied to other recipients;
  • if the subject of the benefits are purchased services - according to the purchase price;
  • if the subject of the benefits is the provision of a flat or building - according to the equivalent of the rent that would be payable in the event of concluding a lease agreement for this premises or building;
  • in other cases - on the basis of market prices used in the provision of services or the provision of items or rights of the same type and species, taking into account in particular their condition and degree of wear and the time and place of making available.

No legal definition - interpretation problems

The lack of an unambiguous definition of a free benefit for many years was a problem of many theoretical considerations among tax advisers, but also disputes with tax authorities. Currently, the National Revenue Information Office, during consultations of the facts on free benefits, often presents a pro-fiscal stance, indicating that each gratuitous benefit received by an employee constitutes income under an employment contract concluded by him and, consequently, is subject to income tax at the rate of 18 or 32%, respectively. .

Prerequisites for the emergence of income from gratuitous benefits for employees

When transferring additional rights, things or benefits to employees free of charge, the consequences of their transfer should be considered in the context of the interpretation of the free benefits provided by the Constitutional Tribunal in the judgment of 8 July 2014, ref. No. act K 7/13.

The Constitutional Tribunal decided that the mere creation by the employer of the possibility to use the benefits, if the employee did not actually use them, does not lead to the generation of income for the employer. In the justification of the judgment, the Constitutional Tribunal defined the joint conditions that must be met in order to recognize that the employee generates income from unpaid benefits:

  • first: they were met with the consent of the employee - the employee used them fully voluntarily;
  • secondly: they were met in his interest (and not in the interest of his employer) and brought him the benefit of increasing his assets or avoiding an expense he would have to incur;
  • third: the benefit is measurable and attributed to the individual worker (not generally available to everyone).

The Constitutional Tribunal decided that the determination of the employee's income is possible only in the situation where he actually benefits from free benefits, when the benefit is obtained at the expense of another entity and, moreover, it has a specific financial dimension.

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Example 2.

The company purchased foreign travel insurance for employees. The scope of insurance does not go beyond the obligations imposed on the employer by the provisions of the Labor Code. Due to the fact that this purchase does not meet any of the above conditions, the employee does not generate income from free benefits..

Example 3.

The company purchased gym passes for selected employees. They were purchased at the personal request of the employee. Therefore, the first of the conditions for recognizing the benefit as free of charge has been met. Due to the fact that the employee avoided the gym fee, and moreover, these tickets were not granted to all employees, it should be assumed that the other conditions for recognizing income from free benefits have also been met.

Fruit and vegetables for employees - the binding jurisprudence

The position presented by the Constitutional Tribunal is confirmed by the binding jurisprudence. For example, the individual interpretation of the Director of National Information in Bielsko-Biała of August 4, 2017, ref. No. 0114-KDIP3-3.4011.230.2017.2.MS2 states that:

'(...) small food products (coffee, tea, milk, sugar, ice cream, snacks, salty sticks, nuts, popcorn, candies, cookies and other small sweets, fruit, fruit juices, mineral water and other non-alcoholic beverages) provided free of charge by the Company, which each employee and invited guest (contractor) can freely consume it on the spot, at their own discretion and needs, they do not constitute a free benefit for them, subject to income tax. The above articles are not personal. Revenue will not arise in a situation where it is impossible to specify the recipient of the benefit, as well as when the value of the benefit for a specific person cannot be individualized. Therefore, the Applicant, as the payer, will not be obliged to collect an advance on income tax, nor will he be required to prepare information on the amount of income on this account..'

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In the individual ruling of March 21, 2017, ref. No. 2461-IBPB-2-2.4511.1128.2016.1.AR indicates the conditions when the free fruit and vegetables for employees will be recognized as income from free benefits:

'(...) These are, for example: tea, coffee, milk, drinks, mineral water, and also chocolate, fresh fruit and vegetables. These products are generally available to employees, i.e. each employee can use them at any time and in any number during the performance of their official duties, and the Company does not monitor in any way, nor would it be even hypothetically able to monitor the consumption of these products by individual people..'

Director of the Tax Chamber in Katowice in an individual interpretation of 12 December 2014, ref. No. IBPBII / 1 / 415-740 / 14 / AŻ also indicates that:

'(...) baskets with apples are displayed in public areas, and the Company does not keep records of the issue and consumption of apples (fruit).

As a result, therefore, the value of apples made available to employees does not constitute income for these people. Revenue will not arise in a situation where it is impossible to specify the recipient of the benefit, as well as when the value of the benefit for a specific person cannot be individualized. Therefore, the Applicant is not burdened with the obligations of the payer for making apples available to employees.'

Fruit and vegetables handed over to employees in a generally accessible place, without monitoring their consumption, free of charge, and without consideration by the employee, will therefore not be recognized as gratuitous benefits for employees and therefore will not constitute income from gratuitous benefits. Consequently, the value of fruit and vegetables consumed by an employee does not constitute the basis for taxation with personal income tax.