In one of The latest interpretations of individual tax law can be read that the cash equivalent paid should not be included in the remuneration.
And the negotiation addresses the situation in which the taxable person was paid an equivalent for unused leave during the period six months before first the month of payment of compensation for compliance with the prohibition of competition. Overshoot of compensation on the basis of Article 30(1)(15) Act dated 26 July 1991 on personal income tax (Journal of Laws of 1991, item 350)would be subject to flat-rate taxation of income tax of 70%.
The cash equivalent for unused leave does not constitute a remuneration for the work performed, but is a kind of compensation for not taking the leave due and cannot therefore be included in the period six months preceding the month of commencement of payment of compensation
The public limited company, in which the Treasury has a majority of the votes, made its submission on 19 June 2019 o an individual interpretation of the personal income tax on the payer’s obligations.
The company submitted that a member of its board of directors in the period from 15 July 2016 to 30 November 2017 perform his duties under the employment contract. From 1 December 2017 those duties were exercised under a civil law agreement, i.e. management service contracts.
The remuneration for providing management services consisted of a fixed (monthly) part and a variable.
It should be stressed that the contract contained a non-competition clause under which a member of the board of directors was obliged during the period 6 months after the termination of the contract, to refrain from operating in competition with the company.
For this reason, the company undertook to pay compensation equal to six times the monthly fixed remuneration, in six monthly instalments.In December 2017 the company paid the taxpayer a cash equivalent for unused leave.
Meanwhile, according to Article 30(1)(15) The PIT Act when determining the amount of compensation paid, above which the amount of compensation is subject to flat-rate tax in the amount of 70%, the amount of remuneration paid to the worker during the period should be taken into account six the months preceding the month of commencement of the payment of the compensation, since only the part of the compensation which exceeds the amount of remuneration received by the taxpayer in respect of the employment contract or the service contract binding it to the company during the period six months before first month of compensation payment.
Consequently, the company is concerned that it may be required to make adjustments to tax returns PIT-11, PIT-4R and PIT-8AR for 2018,She wanted to know whether the cash equivalent for vacation leave would be seen by the tax authorities as part of the remuneration for the last 6 months under which the compensation limit above which the rate will apply will be calculated 70%.
The Director of National Tax Information stated that in a situation where the value of the compensation paid for the prohibition of competition would exceed the value of the remuneration excluding allowances, reimbursement of travel costs, compensation for unlawful termination of the contract, compensation for abbreviated termination of the contract, severance payments, compensation for unused leave or sickness pay and sickness benefit, the payer would be obliged to collect tax of 70% from that part of the compensation which would exceed the amount of remuneration received by the taxpayer. Therefore, the cash equivalent for unused leave does not constitute a remuneration for the work performed, but is a kind of compensation for not taking the leave due, thus cannot be included in the period six the months preceding the month of commencement of the compensation payment.
In conclusion, according to the company, the cash equivalent for holiday leave should be included in the remuneration in question. Under Article 30(1)(15) PIT Act.
However, according to the Director of National Tax Information, the remuneration is that it is entitled to work performed and the equivalent of unused leave does not constitute a benefit paid in return for the work carried out, but is a kind of compensation for not taking the leave due.
Thus, the equivalent of unused leave does not constitute remuneration for the work done.
Based on the interpretation from 5 August 2019, No 0115-KDIT2-2.4011.237.2019.1.ENB