Over the past few years, Christmas has accustomed us to two things. Autumn, rainy weather and … annually recurring questions about the correct taxation of Christmas gifts given to employees. And while we can’t do anything about the weather (we can only recommend tea with cloves and ginger), in the case of the second topic, we come to the rescue as soon as possible!
Employee’s income – PIT
The definition of income under the Polish PIT Act includes money and monetary values received or placed at the taxpayer’s disposal in a calendar year as well as the value of benefits received in kind and other free-of-charge benefits are generally considered as such.
On the other hand, when defining free-of-charge benefits, the judgment of the Constitutional Tribunal of 8 July 2014 (ref. no. K 7/13) is of key importance, where it was specified that benefits which jointly meet the following conditions may be considered as income of an employee:
- the employee’s consent (the employee has used them fully voluntarily);
- a service performed in his interest and not in the interest of his employer, which has benefited him by increasing his assets or avoiding an expense that he would have had to incur;
- the benefit received by the employee is measurable and attributed to him individually, i.e. it is not available in a general way to all entities.
When analysing the income earned by an employee as a result of gifts received, it is necessary to distinguish between the tax consequences that vary depending on the method of financing such a benefit:
- Company Social Benefits Fund
In a situation where a gift for employees is financed from the Company Social Benefits Fund, its transfer will be eligible for an exemption of up to PLN 2,000.00 (from 2024 an exemption of up to PLN 1,000) pursuant to Article 21 sec. 1 point 67 in conjunction with Article 52l sec. 3 of the Polish PIT Act.
- „Regular” funds
It would be different in the case of giving such a gift financed from “regular” funds. In such a case, the entire value of the gift will be taxed by the employee as income from employment, which will be the basis for calculating social security and health insurance contributions. At the same time, pursuant to Article 11 sec. 2a point 2 of the Polish PIT Act, the value of such a benefit is determined according to its purchase prices.
Tax-deductible cost – CIT
As in the case of determining employees’ income, the situation will be different for gifts financed from “regular” funds and those from the Company Social Benefits Fund.
Generally, according to Article 15 sec. 1 of the Polish CIT Act, tax-deductible costs are costs incurred in order to generate income from a source of income or to maintain or secure a source of income.
- Company Social Benefits Fund
According to Article 16 sec. 1 point 9 of the Polish CIT Act, tax deductible costs are write-offs and increases in the Company Social Benefits Fund.
However, the above regulation determines that at the time of incurring expenses for the purchase of gifts for employees, financed from the Company’s Social Benefits Fund, the employer may not include them in tax-deductible costs. The cost should have been recognised earlier – at the time of making the write-off/increase.
- „Regular” funds
It will be different in the case of gifts financed from “regular” funds. In such a situation, the taxpayer will be able to deduct all expenses for tax purposes, provided that they are related to the business activity and their incurrence has or may have an impact on the amount of income generated.
Currently, it is assumed that occasional gifts for employees, including Christmas gifts, play the role of nurturing the atmosphere at work and caring for relations between the employer and employees and between the employees themselves. And when they are financed from current assets, they can be classified as tax-deductible costs.
This position is confirmed, m.in, in the individual interpretation of 22 August 2022 issued by the Director of the National Tax Information (file reference number 0111-KDIB1-1.4010.342.2022.2.ŚS).
At the same time, one should take into account the potential exclusion from tax-deductible costs of expenses for gifts that meet the nature of representation costs. It is primarily about such exclusions as those concerning the purchase of alcohol. This is confirmed, for example, by the individual interpretation of the Director of the National Tax Information of 16 June 2021 (file reference number 0114-KDIP2-1.4010.89.2021.3.PD).
When it comes to the purchase of gifts for employees from the perspective of VAT, the tax authorities are of the opinion that such an activity is not related to taxable transactions. This is due to the fact that, according to the authority, the gifts are given for the personal needs of employees, i.e. they serve to meet their private needs.
Thus, in the case of the purchase of such gifts, input tax should not be deducted. As a consequence, there will be no need to pay output VAT when they are transferred.
This is confirmed, for example, by the advance tax ruling issued by the Director of the National Tax Information on 31 March 2022 (file reference number 0112-KDIL1-1.4012.842.2021.4.EB).
However, it is a debatable but popular practice to deduct input tax and charge output tax.
We should also remember that, in principle, expenses financed from the Company Social Benefits Fund do not give the right to deduct input tax. As part of the “administration” of the Company Social Benefits Fund, the employer does not act as a taxpayer.