Team-building events for employees and personal income tax
At the end of the year many employers organise team-building events for employees. We want to remind that the issue regarding determination of employee’s revenue on account of participation therein is controversial. Employers often neither keep a list of attendance nor determine whether and to what extent the employee has used the performance offered. For that reason many employers did not determine employees’ revenues on account of participation in such event.
Until recently judicial decisions presented commonly the position favourable for employees. The courts emphasised that determination of employee’s revenue under Article 11 of the PIT Act is possible, provided that the following conditions are satisfied jointly:
- It is possible to assign a specific performance to the employee in question;
- The employee has actually received the performance in question (granting the possibility to use the performance is not sufficient);
- It is possible to determine the value of the performance based on Articles 11.2-11.2a of the PIT Act.
However, the end of 2011 saw the first decision negating the hitherto interpretation (judgement of the Supreme Administrative Court of 2 December 2011, No. II FSK 1017/10). The unfavourable position was then duplicated in the judgement of the Supreme Administrative Court of 17 January 2012, No. II FSK 2740/11. It is evident from the above decisions that in order to determine employee’s revenue, the total costs incurred by the employer to organise the event should be divided by the number of persons eligible to participate in the event.
The idea to assign statistical revenues to individual employees, without determination whether they have actually participated in the event and to what extent they have used the performance made available, seems to infringe on the constitutional principle of justice. By statistical determination of revenue the employee bears the consequences of the lack of detailed provisions of law and the application of judicial decisions which are not the source of law. It was noticed by the Regional Administrative Court in Gdańsk in its judgment of 16 May 2012, Ref. No. I SA/Gd 293/12 (non-final):
„First, we should note that the condition for recognising gratuitous performance as revenue is the actual receipt of such performance. Article 11.1 of the quoted Act indicates that revenues (…) consist of cash and cash equivalents received by or made available to the taxpayer in the calendar year as well as the value of non-cash performance and other gratuitous performance received. So the legislator evidently distinguishes in the quoted provision two ways how revenue may arise: a) receipt and b) making it available to the taxpayer. In the case of gratuitous performance, it must be actually received, in contrast to cash and cash equivalents which may be not only received but also made available.”
The quoted judgment concerned the taxpayer’s request for an individual binding ruling. The Regional Administrative Court in Gdańsk confirmed that the tax authority is obligated to analyse judicial decisions indicated in the request for an individual binding ruling, without being at the same time bound by judicial decisions which are not the source of law. In addition, the tax authority should act in accordance with a principle of conducting the proceedings in a manner which may be trusted by the taxpayer.
So if the taxpayer invokes, in an enquiry concerning participation of employees in a team-building event, the existing favourable judicial decisions, the tax authorities should take them accordingly into account.
Examples of favourable judicial decisions: judgment of the Regional Administrative Court in Gdańsk of 16 May 2012, Ref. No. I SA/Gd 293/12, judgment of the Regional Administrative Court in Gdańsk of 27 April 2011, Ref. No. I SA/GD 140/11, judgment of the Regional Administrative Court in Warsaw of 16 June 2009, Ref. No. III SA/WA 412/09, judgment of the Regional Administrative Court in Wrocław of 7 May 2008, Ref. No. SA/WR 1326/08.