LOCAL TRAVEL REIMBURSEMENT DOES NOT GENERATE INCOME FOR EMPLOYEES

This is to let you know of break-through cases decided by the Warsaw Provincial Administrative Court ("PAC") on 11 December 2017 (case no. III SA/Wa 3831/16) and 12 January 2018 (case no. III SA/Wa 74/17), regarding the tax treatment of reimbursements made by employers to employees for use by the latter of their private cars for company purposes.

The line of authority so far has been that such reimbursements generally represent income for the employee concerned to the extent they concern local travel, being travel within the locality which is the employee's place of work, while the exemption under Article 21(1)(23b) of the PIT Act is available only for strictly specified professions (e.g. foresters or postmen).

However, in the recent cases it was held that the tax treatment of said reimbursements in the context of local travel should be determined on the basis of the Constitutional Court's judgment of 8 July 2014 (case no. K 7/13). The Constitutional Court held at that time that for an employee benefit to be treated as the employee's income, the following test must be met:

  • the benefit is provided with employee's consent, and
  • the benefit is provided in the interests of the employee, not the employer, and lets the employee increase his assets or avoid an expense, and
  • the benefit is measurable and attributable to that specific employee.

PAC made a point of noting that in cases of reimbursement for local travel, the expense is incurred in the interests of the employer so the first prong of the test is not met. In effect, such reimbursement does not represent any income for the employee and the issue of whether or not Article 21(1)(23b) exemption applies is moot.

If this issue pertains to your business and you are interested in our assistance, please contact your WTS&SAJA consultant or our office.

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