Company financing of a foreign language course for board members

In the assessment of the tax authorities, the judgment of the Constitutional Court of 8 July 2014 as regards the formation of revenue for the unpaid benefit, it concerns employees and indicates how these benefits should be interpreted, but its thesis is also relevant to the members of the board of directors of the company. Whether a personal income tax payer's financing of individual language training for board members constitutes income from unpaid benefits for those persons is also determined by the content of a specific management contract, as well as by determining in whose interest the provision was incurred – the provider or the recipient.

1. Introduction

On 16 January 2020 The Director of National Tax Information acknowledged in an individual interpretation of tax law 1 for the correct position of the applicant (a company operating in the energy and financial sectors) regarding the obligations of the payer in connection with the financing of the members of the board of the English or German language course.

In the justification for the request for interpretation, the company indicated that the members of the board of directors carry out their duties in accordance with the management service contracts concluded with them and obtain revenue from the activities performed in person.

According to Article 13(7) Act on 26 July 1991 on personal income tax 2 (hereinafter: u.p.d.o.f.) are revenue received by persons, regardless of their appointment, belonging to the composition of boards, supervisory boards, committees or other bodies constituting legal persons.

The above-mentioned agreements contain a record that managers are obliged to act with the utmost care and professionalism, as well as to participate in conferences, seminars or business meetings related to the company's activities, as well as to conduct domestic and foreign trips.

The Supervisory Board agreed to the financing of language training for board members by the company, and the applicant stressed that the course was specifically concerned with sectoral subjects, with the aim of gaining a level of knowledge of English or German, enabling free communication within the framework of its business duties and developing the possibility of communicating in these languages in an international environment.

The applicant stressed that ensuring the participation of board members in the courses of these languages is intended to carry out only the economic interests of the company. Good use of foreign languages is also important for the company in the context of conducting business talks on investment funds and asset management.

The payer also noted that if the language training of board members resulted in an individual benefit, this would not be the objective of the company's operation but its by-product.

The company requested an interpretation from 15 November 2019 the question: whether the applicant's financing of individual training for board members, in the form of an English or German language course, constitutes for those persons the income from the unpaid benefits in question under Article 11(1) In the applicant's opinion, that is not the case.

The wording of the interpretation also notes that if a member of the board were not appointed to perform his duties in the company, he would probably not be interested in bearing the costs of individual linguistic qualifications, as he would not be required to do so in his daily life.[3].

2. The concept of free provision in case law

Both the applicant and the Director of the CIS referred in their positions to NSA resolutions from 18 November 2002 4 and 16 October 2006 5 , and also to the public judgment of the Constitutional Tribunal of 8 July 2014 6 .

The Supreme Administrative Court stated in the first of the abovementioned resolutions, which was confirmed In the second ‘It must be borne in mind that the term ‘free benefit’ used under Article 12(1)(2) Act on 15 February 1992 on corporate income tax 7 , has a wider scope than civil law.

It includes not only the provision of a civilised meaning (action or omission to another party), but also all economic phenomena and legal events resulting in an advantage at the expense of another entity, or all legal and economic events in the activities of legal persons resulting in free of charge, i.e.

not related to costs or other forms of equivalent, the transfer of assets to that person, having a specific financial dimension[8]. This position is also valid on the ground Articles 11(1) and 12(1) u.p.d.o.f.9 .

In turn in the groundbreaking judgment of the Constitutional Tribunal of 8 July 2014 determined three valid conditions for recognising unpaid benefits as employee income from the employment relationship, namely: 1) they have been fulfilled with the consent of the employee (fully voluntarily used); 2) have been fulfilled in its interest (not in the interests of the employer) and have benefited it by increasing the assets or avoiding the expense it would have to bear; 3) This benefit is measurable and assigned to an individual worker (not available in a general way to all entities).

The central interpretation of the Director of National Tax Information

In the interpretation under discussion, the Director of KIS stated that the above judgment of the Constitutional Tribunal, although it relates to the benefits received by employees, contains guidance on the interpretation of the issue of unpaid benefits, and those findings are also valid for persons who are members of the board of directors (manefactors).

Revenues of a member of the management board in the event of the conclusion of a management service contract shall be included in the source specified under Article 13(7) u.p.d.of. and, in principle, the costs of language courses incurred by the company should be eligible as revenue which is subject to income tax on individuals.

However, in a situation where the manager has been obliged to participate in specific training “there is no way to talk about revenue arising on the part of the taxpayer when the participation in the courses is one the conditions of performance of the contract and the refusal to comply with that obligation could result, for example, in the termination of the contract." The Director of KIS also pointed out, inter alia, that the costs of participating in the courses are related to the activities of the company and that the members of the board of directors are obliged, in accordance with the contract, to participate in them, and that, "from the point of view of the company, the provision of an English or German language course is intended to meet only its interests and results from the company's needs in this regard".

Therefore, he considered the applicant’s position to be correct.

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