Mission expenses – new WSA ruling

The tax office and the WSA leaned on the way in which the benefits paid to construction workers were recognised in the form of business allowances, i.e. outside the remuneration itself for work. This is important in the settlement of advances on personal income tax.

Judgment of the Provincial Administrative Court (hereinafter: WSA) in Gdańsk dated 5 January 2021, reference no. I SA/Gd 728/20, points out the importance of a precise distinction between staff travel expenses treated as diets and the same expenses treated as components of remuneration.

It is often the case that an employee performs work for an employed entity away from its seat or from a standard workplace. In standard cases, a staff member whose definition has been defined indirectly may be referred to as a business trip, In the Act dated 26 June 1974 Labour Code[1] under Article 775(1) „A staff member who, at the employer's direction, has a business task outside the place where the employer's seat is situated or outside the permanent place of employment shall be entitled to compensation for the costs of the business trip.’ The determination of whether a worker receives duty due for a business trip or a normal salary has significant tax implications.

Facts

In the course of the tax audit, the Chief of the Tax Office (hereinafter: the tax authority) established that the company had misinterpreted the interpretation of the components of paid staff by qualifying them as business travel expenses. These included diets, lump sums for accommodation and reimbursement of travel expenses.

In the view of the tax authority, these expenses should be considered as remuneration, since the employees did not make business trips and performed the tasks specified in the contract of employment and at the place indicated in the contract.

The entrepreneur disagreed with this interpretation. It is an operating entity in the framework of construction and finishing works. The sent workers performed services of the entity outside Poland, in a country belonging to the European Union.

He pointed out, rightly, that none of the provisions in force restrict the payment of allowances for business travel to construction workers employed under a contract of employment. Moreover, he argued that they should be treated as mobile workers as well as drivers.

Both types of this work are performed outside of the place of residence and every time and still in new places. This means, according to the audited entity, that they do not have a permanent place of employment within the meaning of the rules.

Therefore, similar rules should not apply to both groups as regards the recognition of travel expenses[2]. He also stressed that "the purpose of travel allowances is not to give the worker additional benefits, but only to compensate for the additional expenses incurred, and the life handicaps associated with his stay out of residence."

However, the tax authority stressed that although workers operated on various construction sites in a Member State of the European Union, at the time of signing the contracts they were aware of the nature of the work they were doing, which meant that their permanent place of work was always the place defined in the framework of the contract of employment (the European Union period), where they provided permanent, systematic and long-term work. This was the case, for example, for investments carried out during the period considered by the entrepreneur.

The essence of the dispute

The main axis of the dispute between the tax authority and the entrepreneur is the interpretation of how the benefits paid to construction workers are recognised in the form of business allowances, i.e. outside the remuneration itself for work. This is important in the settlement of advances on personal income tax.

According to Article 21(1)(16) point (a) Act dated 26 July 1991 on personal income tax[3] allowances and other charges for the service of the worker shall be exempt from income tax up to the amount specified in the separate laws or provisions issued by the Minister responsible for Labour on the amount and conditions for the determination of the fees due to the worker employed in the state or local government budget area, for business travel within and outside the country[4].

In accordance with the general principle, the settlement of such claims should be laid down in the rules on the payment of remuneration in the undertaking concerned or in the employment contracts.

In the absence of such regulations, however, reference should be made to the provisions on budgetary staff laid down in the Regulation of the Minister of Labour. According to him, the allowance is not due for the time of posting to the permanent or temporary residence of the worker.

This is important that the misrecognition of a particular remuneration for allowances due to service allowances results in the failure to meet its obligations as a payer and payment fiscal criminal offence based on Article 56(1) Carnoscarb Code[5] and, of course, the tax consequences for unpaid advances. However, the problem is that the provisions of the PIT Act lack the definition of "service travel". In that case, reference should be made to the already indicated Article 775 The labor code.

Statements on the nature of the business trip were given by the Supreme Court through a resolution in the composition 7 Judges dated 19 November 2008 reference no. II PZP 11/08[6]. The Supreme Court defines the nature of the order to leave the employer so that the rules can be applied to him. Article 775 The labor code.

It is indicated that this provision sets out the nature of a business trip, which is temporary, incidental and short-term. In addition, it indicates that ‘service tasks within the meaning of Article 775(1) k. is not a specific type of work resulting from the nature of employment. This is never an incident.”

Judgment of the Provincial Administrative Court

In examining the taxpayer’s complaint, the WSA acknowledged that the substance of the dispute had already been decided by the judgments of the courts[7], with which the decision-making body in the case shared the essential thesis of decisions. According to the Supreme Court judgments, a business trip is not the same as the performance of the work to which an employee undertakes as a result of an employment relationship compatible with Article 22(1) The labor code.

„An employee who, by virtue of his contract of employment, performs work on a permanent basis in a specific place (locality) abroad without a separate appointment of his task and the time limit for his performance in that place, does not make "multiple business trips abroad" (cf. Supreme Court judgment of 3 April 2001, I PKN 765/00, OSNP No Regulation (EU) 1/2003, item 17).”[8].

Also directly due to the sound Article 21(1)(16) point (a) only professional allowances are subject to the exemption provided for in the provision. According to the WSA, the tax authority is correct in the complaint. The work of a construction worker does not, in essence, consist of the constant movement in a specific geographical area, as is the case with drivers. However, it has an unusual character that may lead to the illusion of ‘similarity’ of both types of work.

Taking this into account, the WSA considered that an employee of a construction company carrying out an investment in various localities may have a specific place of work in the employment contract in such a way that it is located in the place where the employer provides his services and possibly with a geographical area.

This means that the place of construction carried out by the employer fulfils the conditions for defining it as a permanent place of employment of such worker, even if from a geographical point of view it is not the same place physically. This is in line with the findings of the tax authority.

„It is clear from the uncontested findings of the tax authorities that the employees employed by the complainant did work only outside Poland (...). To the place of work, they left cyclically once or two once a month for several or several days, in order to carry out construction work for employer contractors. It is further apparent from the employee's testimony that at the time of the employment contract they were aware that their work would be performed abroad and that this was indeed the case.”[9]

It follows that the employees of the trader could not be treated as mobile workers, even though the nature of their work resulted in benefits being provided at different locations. Moreover, their work was not of a incidental nature because they did ordinary work, which further confirms the failure to recognise the nature of the work as a business trip.

„If the permanent place of employment of workers is each place of investment on which the worker has been systematically employed for a long period of time, then the allowances paid to employees cannot benefit from tax exemption on the basis of Article 21(1)(16) u.p.d.o.f. and are a component of the remuneration of the taxable employment relationship.’[10]

The WSA dismissed the entrepreneur's complaint.

[1] (i.e. Journal of Laws of 2020, item 1320 as amended, Further: Labour Code)

Author: Damian Kuszewski

The author is a graduate of the Warsaw School of Economics in Finance and Accounting, and a graduate of the Faculty of Law at SWPS. From 2018 Associated with Russel Bedford Poland. His professional interests are tax law and, in particular, income taxes.