Employers are increasingly offering extra extra-payments in order to make employment more attractive and to increase the motivation of their employees. These include sports and recreational passes, i.e. MultiSport, Fit-Profit and similar cards, allowing to use not only gyms and swimming pools, but also other recreational facilities. The employer may finance in part the cost of such a carnet from the entity's turnover.
The transfer of these benefits at prices lower than their market value may give rise to doubts as to the correct taxation of transactions under VAT.
As a result of the current approach of tax authorities, taxpayers should verify the method of accounting for labour benefits so far, as it may result in VAT arrears.
VAT due only on value financed by employees
Until one point, a large part of the tax authorities held that employers charging their employees with partial payment of benefits should establish the tax attitude as the actual amount of payment received or payable by the employee, less the amount of VAT.
This position was presented, among others, by the Director of the Tax Chamber in Poznań in an individual interpretation from 21 May 2012, reference no. ILPP1/443-168/12-4/NS, which indicated that "(...) in the case of partial payment for the service provided, the taxable amount is only the amount received from the employee - the recipient of the service. Therefore, the Company should charge VAT only due on the value of benefits charged to employees (...)’.
The authorities were of the opinion that Article 32 The VAT Act (referring to links arising, inter alia, from the employment relationship) does not apply to sales to employees, as this provision only applies to transactions between VAT payers.
The above position was adopted, among others, by the Director of the Tax Chamber in Poznań in an individual interpretation dated 21 May 2014 reference no. ILPP2/443-183/14-4/MR, who considered that ‘the rules on the assessment of turnover by tax authorities on the basis of Article 32 The laws refer only to the relationship between taxpayers and do not cover their direct (basic) employer-employee relationship.’
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Consequently, the Authority considered that, where the taxable person sells benefits to employees at prices lower than market prices, it would not apply Article 32(1) VAT Act.
Changing the approach of tax authorities
Recently, tax authorities have changed their existing position, which is beneficial to taxpayers, recognising that employers and employees are related entities within the meaning of Article 32 VAT Act. Consequently, the taxable amount is the market value of the benefits provided less the tax.
For example, Director of National Tax Information in an individual interpretation dated 12 August 2019 reference no. 0114-KDIP1-3.4012.234.2019.2.ISK He pointed out that, "when a taxable person makes a resale to employees of benefits requested at prices lower than market prices – and this is the case in the event of partial payment for the right to use parking spaces and sports passes – this will apply Article 32(1)(1) laws, including a standard to prevent tax avoidance in such situations.’
Consequently, it should be concluded that according to Article 29a VAT Act, the taxable amount of partly paid benefits to employees is the value of the benefit in question resulting from the invoice of the taxpayer’s purchase of the benefit from a person third.
This position is not isolated. Similar solutions can be found in recent individual interpretations, among others:
- - dated 4 December 2019, reference no. 0114-KDIP1-1.4012.593.2019.1.AM and
- - dated 12 August 2019 reference no. 0114-KDIP1-3.4012.234.2019.2.ISK.
A negative approach for taxpayers was also confirmed by the Provincial Administrative Court, in its judgment of 12 October 2017 reference no. I SA/Łed 643/17.
As a result of the current approach of tax authorities, taxpayers should verify the way in which employee benefits are accounted for so far, as they may result in tax arrears in the amount of VAT resulting from the difference between the market value of the benefit and the amount received from the employee.
It should also be stressed that the current position concerns the situation in which benefits to employees are financed partly from the employer's turnover and partly from the employee's own resources.
Where the benefit is financed by ZFŚS, the tax authorities will not estimate the taxable amount at market value as the operation is not taxed at all. Therefore, the employer does not act as the VAT taxable person in question. Under Article 15(1) VAT Act, but it only acts as an administrative entity for the funds of that fund.