Does an employee’s participation in a company team-building event constitute income from their employment which the employer must tax in their capacity as a tax withholder? We secured a favourable ruling on this matter before the Supreme Administrative Court.
Client's situation
Our client organised team-building events for its staff – both at restaurants and as away trips, including accommodation and meals – as well as special-occasion gatherings. Some of these events included training and information sessions, whilst others were purely for team-building purposes.
On the one hand, the company treated these expenses as tax-deductible costs; on the other hand, it had doubts as to whether, by virtue of employees’ participation in the events, it should treat this as income arising from their employment – and thus act as a tax withholder.
The issue
DMS TAX’s task was to safeguard the client in the event of a dispute with the authorities regarding the failure to declare, on the employees’ part, income derived from participation in organised events.
Our approach
We applied for an individual ruling, arguing that employees’ participation in team-building, training or special-occasion events does not constitute income for them. In the case of an event organised for all employees, the company covers the costs in such a way that it is impossible to determine what proportion of the costs relates to a specific individual – it is therefore impossible to attribute the actual value of the benefit.
The Minister of Finance ruled that the benefits could be individualised. In view of this unfavourable interpretation, we called upon the authority to remedy the breach of law, and subsequently brought the case before the Provincial Administrative Court (WSA); following a cassation appeal by the authority, the case was then heard by the Supreme Administrative Court (NSA).
The basis for not including income in employees’ earnings
The Supreme Administrative Court dismissed the Minister of Finance’s appeal on points of law. The Court pointed out that gratuitous benefits must actually be received, and that in order to recognise revenue, it is necessary to determine its amount – which was impossible in this case. Income cannot be determined by simply dividing the cost of the event by the number of participants.
For the client – as the tax withholder – this provided grounds for not including income arising from participation in corporate events in employees’ taxable income. The employees avoided taxation on the team-building events, whilst the employer avoided the risks and burdens associated with acting as a tax withholder.
What this means
This case forms part of a line of case law concerning the taxation of employee benefits, which is of significant importance to employers. It was handled by managing partner Jacek Dobrucki.