Income from gratuitous benefits and employee accommodation

Service-Tax

As part of the work performed, employees are often delegated by the employer to perform activities in another location or abroad. In this case, the employer bears the costs of accommodation and transport of employees.Therefore, there are doubts as to whether the employee should prove income from unpaid benefits and whether the employer is required to collect an advance on income tax. We will explain this problem in the following article.

Income from gratuitous benefits - when it occurs

The problem concerns the correct interpretation of the content of Art. 12 sec. 1 of the PIT Act, according to which revenues from a service relationship, employment relationship, homework and a cooperative employment relationship are all types of cash payments and the monetary value of benefits in kind or their equivalents, regardless of the source of financing these payments and benefits, in particular : basic salaries, remuneration for overtime, various types of allowances, awards, equivalents for unused leave and any 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 benefits or partially paid benefits.

As a result, for an employee, taxable income is not only the wages received, but also the income from gratuitous benefits. An example of a free benefit may be the provision of accommodation or transport for an employee.

No income when the benefit is provided in the employer's best interest

Although initially the tax authorities presented an unfavorable interpretation of the provisions for taxpayers, the administrative courts quickly developed a fairly uniform line of jurisprudence. This was significantly influenced by the judgment of the Constitutional Tribunal of 8 July 2014, K 7/13, in which judges dealt with the subject of free benefits. In the justification of the judgment, we can read that the gratuitous benefit should be understood as a property gain received by the employee of an individually specified value. Moreover, the Tribunal indicated that the employee's income may include only such benefits that were met with his consent and in his interest (and not in the interest of the employer) and brought him an advantage in the form of increasing assets or avoiding an expense that he would have to incur, and this benefit is measurable and attributed to the individual employee.

Consequently, in a situation where the transport and accommodation of the employee takes place due to the need to work outside the country, we cannot talk about the performance of the benefit in the interest of the employee. Such expenses are incurred solely for the purposes of the employer's business activity and do not bring any benefit to the employee himself, then there is no income from gratuitous benefits.

In their judgments, administrative courts have repeatedly stated that it is the employer's responsibility to provide access to the workplace located at a considerable distance from the employer's seat, as well as the employee's place of residence. It is the employer, not the employee, who benefits economically. In addition, it should be emphasized that the employee has no freedom in managing and disposing of this benefit, and uses it only for a specific purpose, i.e. performance of his employee duties.

The Supreme Administrative Court reached similar conclusions in the judgment of 9 August 2016, II FSK 1970/14, where in the justification we can read:

Both providing accommodation by the employer to the employee and transport to a distant place of work, especially in the case of construction and assembly services - serves only the fulfillment of the employee obligation - the employee has no freedom in managing and disposing of this benefit, and uses it only in a specific goal - the performance of your employee duties.

(...) the costs of accommodation, creating a social base appropriate to the working conditions, as well as travel to a specific and changing place depending on the construction site location, are primarily the costs of the employer, incurred in his interest resulting from his business activity, not and in the interest of the employee. Therefore, irrespective of the regulation adopted by the legislator in Art. 21 sec. 1 point 16 u.p.d.o.f., limiting tax exemption only for diets and other charges for the duration of the employee's business trip, do not constitute this type of income benefit, defined as the value of other free benefits.

Thus, it should be stated that both the costs of accommodation and travel to a specific and changing place depending on the needs of the place of work are primarily the costs of the employer, incurred in his interest, resulting from his business activity, and not in the interest of the employee. . This means that the value of the accommodation and commuting provided to the employee does not constitute additional benefits for him due to free benefits and as a result there is no income from free benefits. Therefore, the employer is not obliged to collect income tax advances.

Finally, it should be pointed out that the employer's expenditure on transport and accommodation of employees outside the country is a tax-deductible cost, as it is clearly related to the business activity and directly serves to generate income.

Example 1.

An employer running a company in the construction industry posted his employees to work in Germany. He provided them with transport and accommodation for the duration of their work. In such circumstances, the expense is related solely to the interest of the employer, which means that no taxable income from gratuitous benefits will arise on the part of the employees. The value of the expenses incurred by the employer is its tax deductible cost.