Accommodation and other employee benefits - change in the approach adopted by the tax authorities
Tax Alert 19/2015
17 November 2015
New interpretation trend
In accordance with the latest decisions of administrative courts as well as the latest tax rulings issued by the Ministry of Finance, a mobile employee’s accommodation cost incurred by the employer shall not be regarded as revenue earned by the mobile employee even if the said employee is not on a business trip. In particular, the foregoing applies to employees whose employment contracts specify a geographic area (e.g. the territory of the whole country or several provinces) as the place of work and who do not return to their place of residence every day.
The tax authorities used to employ a far stricter approach to the issue, claiming that accommodation costs covered by the employer on behalf of a mobile employee that was not on a business trip represented the latter’s revenue under the employment contract, which was, as a rule, subject to tax and constituted a basis for calculation of social security contributions.
The courts’ approach to the aforementioned issue and, consequently, the uncompromising position taken before by the Ministry of Finance, were changed by the judgment of the Constitutional Tribunal of 8 July 2014 (case no. K 7/13), laying out the criteria to be satisfied by a benefit to be regarded as revenue under the employment contract. In accordance with the said judgment, only performances provided with the consent of and in the interest of the employee (as opposed to the interest of the employer), which are a benefit for the employee as they increase the value of his/her assets or enable him/her to avoid an expense which would otherwise have to be incurred, where the benefit is measurable and allocated to a specific employee, may be considered the employee’s revenue.
Practical implications and further action
A change in the approach to employee accommodation costs may also affect other performances (such as liability insurance, relocation or commuting costs). It also enables employers to offer an attractive form of remuneration to their employees without incurring any additional costs, or even to cut costs in certain circumstances.
However, employers covering the costs of accommodation of their mobile employees and offering them other benefits related to the work they perform should bear in mind that the said change in the position on the issue taken by the tax authorities and the resulting change in their practice has not been driven by any amendments to the personal income tax laws.
Thus, both employers who did not use to recognize their mobile employees’ revenue from free-of-charge accommodation offered to such employees and those willing to introduce changes in their treatment of the above performances to the benefit of their employees should consider taking actions that would protect them in the event of a tax audit or another change in the approach adopted by the tax authorities to the aforementioned issue.
We are ready to discuss the new possibilities with you and plan further action to be taken so that you are able to take advantage of the new opportunities created by a change in the approach adopted by the tax authorities to employee benefits.