This is to draw your attention to the private tax ruling dated 22 Feb 2024 by Director of National Revenue Information (“Authority”), ref. 0114-KDIP3-1.4011.1022.2023.8.AC (“Ruling”), which is concerned with the deductibility for income tax purposes of expenditure associated with foreign training-related trips for employees.

As per the facts stated in the Ruling, the applicant incurred expenses to organise a foreign trip for its employees during which they participated in staff integration meetings, business meetings and sightseeing. The business meetings programme had the participants discuss the progress of pending projects and exchange comments and experience. The training slot lasted 4 hours per trip day on average. In connection with the trip, the applicant incurred travel and tourist service expenses comprising airflights, insurance, accommodation, meals, sightseeing. The applicant argued the trip is associated with its business because it contributed to an improved spirit among employees and their enhanced knowledge, thereby leading to better work performance and increased competitiveness of the applicant.

The Authority disagreed, indicating that the trip was in the nature of a staff integration and entertainment event while the employee training slot took a minute portion of the overall trip duration. Among the signs that such a trip did not have a measurable impact on the generation of any income or on the preservation or securing of any source of income is that the trip expenses do not include any costs strictly related to the business (training) part. In addition, the Authority was of a view that, given the topics covered, the duration and the number of trip participants, a training event of this kind could take place in company’s offices, helping to avoid the costs described in the application. Consequently, the Authority held that, under the facts, the private interest of the participants (entertainment) prevails over business purposes, which means the costs do not satisfy the deductibility criteria to allow them for income tax. A similar approach can be seen in other cases decided by the Authority, e.g. in its private tax ruling dated 28 Apr 2023, ref. 0111-KDIB1-1.4010.32.2023.3.AND.

On the other hand, the Authority also issues tax rulings in which it allows the deduction of staff training expenditure for tax purposes, such as the ruling of 14 Dec 2023, ref. 0114-KDIP2-2.4010.523.2023.3.PK, where it was held that expenses incurred for the benefit of employees generally constitute tax costs for the employer if only they meet the test under Article 15(1) of the CIT Act. What is more, there are a number of Authority’s rulings to confirm that staff integration expenditure may also be allowed as a tax cost (see, e.g., the rulings dated 10 May 2023, ref. 0111-KDIB1-1.4010.30.2023.5.KM, or 12 Dec 2023, ref. 0111-KDIB1-1.4010.436.2023.1.SG). However, it turns out the Authority does not follow this approach when it comes to staff training or integration events organised abroad.

Thus, any staff training expenses should be analysed in terms of (1) whether they are related to the purposes of taxpayer’s business, i.e. to generate income or to preserve or secure a source of income, (2) whether, in such a case, the private interest of the employees prevails over the business purposes of the taxpayer.

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