New position of the Supreme Administrative Court – taxation of benefits for posted employees

In the case in question, a company was providing services within the European Union under the EU freedom to provide services. Employees were posted on the basis of annexes to employment contracts. The company had doubts whether the provision of free accommodation to employees posted abroad for the duration of the posting gave rise to employment income for the employees.  

In a judgment of 1 August 2023 (file reference: II FSK 270/21), the Supreme Administrative Court ruled that benefits for accommodation and transport during posting of employees are not taxable. This means that no income within the meaning of the Income Tax Act arises for an employee posted abroad in connection with the provision of the benefits provided by the employer. The NSA has thus broken with the established line of jurisprudence. Until now, the costs incurred by the employer for accommodation and transport has been considered as income for the provision of work on the part of the posted employees.

What is the difference between delegation and posting of an employee? 

Although they sound similar, delegation and secondment are not identical terms. A delegation refers to an employer-ordered one-off and brief performance of a specific business task away from the employer's premises, such as an off-site meeting with a client. The employee is then entitled to travel and subsistence allowances. If the costs for these benefits are within the limits, they are then exempt from taxation. If the costs incurred by the employee exceed the limits (e.g., per diems), the employee must pay tax on the excess. It is then deducted from the employee's salary.  

The posting of an employee, on the other hand, is delegating the employee to work in a different place/condition than those specified in the employment contract, e.g., in a different city or country. The seconded employee is entitled to benefits arising from the employment relationship. In such case, an employee is not entitled to benefits arising from the business trip, i.e., delegation. According to the previous line of jurisprudence, accommodation and transport costs incurred by the employer to the place of posting were treated as a material element of the posted employee's remuneration, constituting income of the posted employees for the provision of work. Income tax on these benefits was calculated and deducted from the salary of a posted employee.

What is the line of argumentation of the NSA for the ruling on the taxation of benefits for posted employees?  

In the case in question, the Supreme Administrative Court referred to the fact that the posting of an employee is merely a temporary change of the place of work and recalled the EU regulations on the posting of employees abroad, i.e. the provisions of Directive 96/71/EC of the European Parliament and of the Council of 16 December 1996 concerning the posting of workers in the framework of the provision of services, Directive 2014/67/EU of the European Parliament and of the Council of 15 May 2014 on the enforcement of Directive 96/71/EC concerning the posting of workers in the framework of the provision of services and amending Regulation (EU) No 1024/2012 on administrative cooperation through the Internal Market Information System and Directive 96/71/EC of the European Parliament and of the Council of 16 December 1996 concerning the posting of workers in the framework of the provision of services. What follows from the Directives is that the provision of accommodation and transport to seconded workers for the duration of the posting is inherent to posting. Citing the EU legislation, according to which benefits in kind are not part of the remuneration, the NSA ruled that these benefits should therefore not constitute a basis for taxation. It also applies to the reimbursement to the posted employee of accommodation and transport costs incurred during the period of posting.

The NSA stated that the costs incurred for the provision of accommodation and transport to the posted employee are de facto the responsibility of the employer, hence not the employee. These benefits are used by the posted employee for a specific purpose - the performance of official duties. Therefore, there are no prerequisites for them to be subject to income tax. In the case in question, the NSA also supported the company's argumentation that the posting of employees, especially for a short period, is similar to business travel. Therefore, the benefits provided to the employee are not considered an element of remuneration, so they are not grounds for being subject to income tax.  

Given that EU legislation take precedence over national rules, we are currently witnessing the formation of a new line of jurisprudence in favour of employers and posted employees. Thus, in cases similar to the one with the precedent-setting ruling of the NSA, we can expect the application of a new interpretation of the provisions of the Personal Income Tax Act and even changes to the Act itself. The change in the jurisprudential line of the NSA is advantageous for both employers and posted employees.