Is the reimbursement of business trip expenses by the employer considered employee income?

Another Favorable Ruling by the Supreme Administrative Court

The Supreme Administrative Court (NSA) in its judgment of January 9, 2024 (case ref. II FSK 434/21) confirmed the existing case law line, according to which expenses incurred by the employer related to the delegation of an employee to work abroad in another EU country (costs of accommodation, meals, transport, or reimbursement of costs actually incurred by the employee) do not constitute employee income within the meaning of Article 12(1) of the Personal Income Tax Act (PIT), and therefore are not subject to taxation.

Factual Background

Company X, providing its services in Poland and other EU countries, employs workers mainly to perform tasks within Poland. To carry out tasks abroad, the Company sends its employees to other member states. Accommodation, meals, and transport to the workplace are organized in such a way that employees do not receive per diem allowances for business trips — all the aforementioned costs are fully covered by the delegating employer.

The Company applied to the competent Director of the Tax Chamber for an individual interpretation to determine whether the free provision of accommodation and other necessary benefits to employees during work abroad would result in income from employment within the meaning of Article 12(1) of the PIT Act, i.e., whether it constitutes a gratuitous benefit to the employee subject to taxation. The Company took the position that free accommodation does not generate income for employees, as delegating employees abroad and ensuring proper working conditions is in the interest of the applicant (the employer).

In response to the application, the Director issued an individual interpretation supporting the applicant’s position and justification. However, the Head of the National Tax Administration (KAS) later changed the earlier position to incorrect, which was upheld by the Voivodeship Administrative Court (WSA) in a judgment dismissing the Company’s complaint against the change of interpretation (case ref. III SA/Wa 2844/19).

Position of the Supreme Administrative Court (NSA)

As a result of a cassation complaint, the case reached the NSA, which overturned the lower court’s ruling along with the change of the individual interpretation made by the Head of KAS.

In the reasoning of its judgment, the NSA recalled the regulations of the Act of June 10, 2016, on the posting of workers within the provision of services, which implements Directive 96/71 into the Polish legal system. Article 4(5) of this Act provides that remuneration for posted workers includes a posting allowance only to the extent it does not constitute a reimbursement of expenses actually incurred in connection with posting, such as travel, meals, and accommodation costs. This leads to the conclusion that the employer’s benefits or any reimbursement of expenses independently incurred by posted employees to organize working conditions abroad are not considered part of remuneration, ergo – they do not constitute employee income. The NSA also shared (differently from the WSA) the claimant’s assertion that all expenses for accommodation, meals, and transport of posted employees are incurred solely in the employer’s interest – the organization of work execution belongs to the employer, including during the period and conditions of employee posting; only the employer’s economic interest lies in performing assignments abroad, not in the country of its registered office. The Constitutional Tribunal’s ruling cited by the Head of KAS and the WSA, dated July 8, 2014 (case ref. K 7/13), does not apply in this case – it concerned a situation where the employer’s free benefit was provided in the employee’s interest.

A Judgment Beneficial for All

The position of the Supreme Administrative Court frees the employer from the obligation to withhold and pay the employee’s income tax and the employee from tax liabilities in this regard. After this well-founded NSA judgment, employers can expect more favorable individual tax interpretations. The NSA ruling, as well as other rulings of administrative courts (e.g., NSA judgment of August 1, 2023, case ref. II FSK 270/2; NSA judgment of May 9, 2024, case ref. II FSK 1154/21; WSA ruling in Gliwice of February 6, 2024, case ref. I SA/GI 1025/23), create a strong argumentative basis in potential tax disputes. In case of any problems or doubts regarding similar disputes, we encourage you to contact our law firm.