Participation in the integration event and the employee’s revenue
End of the year is usually associated with company events organised for employees, and often also for their families. Until recently, the consequences of such events for personal income tax have been raising many disputes with the tax authorities. But according to the current line of interpretation, under certain conditions, participation of employees in company events should not represent for them revenue from free of charge performance. Such position was confirmed by the Minister of Finance in the individual binding ruling issued on 9 September 2015 by the Director of the Fiscal Chamber in Katowice (ref. no. IBPB-2-1/4511-217/15/KrB).
In the factual situation underlying the binding ruling, the employer organised a company sports event, which was open to all employees on equal terms and conditions – in order to participate, the employee had to pay a fee of PLN 10. The costs of the event were covered partly from the Company Social Fund and partly from the employer’s working funds. The tax authorities agreed with the applicant’s opinion that participation of the employees in such an event does not represent for them free of charge performance referred to in Article 12.1 of the Personal Income Tax Act.
Such conclusion was derived by the taxpayer from a judgment of the Constitutional Tribunal dated 8 July 2014, ref. no. K 7/13, in which the Tribunal stated that “other free of charge performance” meant only a financial gain of the value specified individually, received by the employee.
The Tribunal found that performance which may be recognised as the employee’s revenue includes only such performance which:
- first, has been provided with consent of the employee (the employee has made use of it fully voluntarily),
- second, has been provided in the interest of the employee (not the employer) and has brought benefit to the employee by increasing his/her assets or allowing him/her to save an expense that otherwise would have to be incurred by the employee,
- third, the benefit can be quantified and assigned to the individual employee (it is not generally available for everybody).
So in order to be taxable, performance received from the employer, regardless of its form, must lead to income on the part of the employee, meaning a financial gain in the form of the increase in assets or the saving of expenses. There is no financial gain when the employer proposes to the employees to participate in company events. In such case, even if the employee participates in the event voluntarily, there is no benefit on his/her part, even understood as the saving of an expense, because we cannot assume that the employee would spend his/her own money in order to participate in the event if its costs were not covered by the employer. The Tribunal also emphasised that performance other than monetary may represent revenue only on condition that it has been „received” (and not put at the disposal or received). So it is necessary that performance may be assigned individually, quantified in terms of its monetary value and addressed to a specific recipient.
In the binding ruling, the Minister of Finance noted that the criterion of a financial gain (benefit) on the part of the employee has not been met. Since the sports event was open to all employees, although participation was voluntary, there will be no benefit in the form of the saving of an expense on the part of the employees. We cannot assume that the employee would spend money to participate in such an undertaking organised by an entity other than the employer. What is more, there are no grounds for assigning performance addressed to all employees to individual participants as their quantified benefit. Without specific and individually addressed performance, it is not possible to determine the amount of income.
Because the quoted verdict of the Constitutional Tribunal has the nature of an interpretative judgment and is generally applicable, it should serve as guidance for the tax authorities and courts how to interpret the regulations. So the taxpayers may be satisfied with the fact that the tax authorities seem to respect the interpretation of the Constitutional Tribunal, which may be evidenced by the position of the Minister of Finance in the binding ruling issued in September.