Taxation of accommodation and transport in posting cases – change in case law trends

For a long period, courts commonly adopted, based on the judgment of the Constitutional Tribunal (case ref. K 7/13) of 8 July 2014, a favourable interpretation whereby benefits provided by employers posting employees—such as accommodation, meals or transport—did not give rise to taxable income for the employee. This interpretation was explained by the fact that such benefits primarily served the employer’s interests. However, the resolution of the Supreme Court of 10 December 2015 (III UZP 14/15) changed the jurisprudential stance on the taxation of accommodation and transport, to the detriment of employers. Common and administrative courts held that where an employee is provided with accommodation, transport or meals, he or she receives income within the meaning of Article 12(1) of the Personal Income Tax Act. Consequently, the posting employer is obliged, as the tax remitter, to calculate, collect and remit an income tax advance. However, following the recent landmark judgment of the Supreme Administrative Court (NSA) of 1 August 2023 (case ref. II FSK 270/21), a breakthrough and a complete change in the current jurisprudential line may be on the horizon. This ruling is highly significant from the perspective of posting employers. Considering its importance, it is worth reviewing the key conclusions drawn and examining the potential implications for posting employers in the near future. This article seeks to present the main elements of the judgment and explain its potential consequences.

Landmark Judgment of the Supreme Administrative Court of 1 August 2023 (case ref. II FSK 270/21)

In the case under discussion, the Director of the National Tax Information issued an individual interpretation in March 2020, in which he stated that the position of the company R Sp. z o.o. on income tax obligations concerning the provision of accommodation to employees was incorrect. The company (the claimant) argued that the provision of lodging did not constitute income within the meaning of Article 12(1) of the Personal Income Tax Act. The company appealed this decision to the Voivodeship Administrative Court (WSA) in Kraków, which dismissed the complaint, maintaining the previous line of jurisprudence. The court justified its position by stating that providing an employee with accommodation does not relate to the work process, as it is not a tool through which the employee performs his or her duties, but rather meets personal, non-work-related needs. Furthermore, the WSA held that the mere fact that an employee resides away from home does not imply that he or she remains at the employer’s disposal or uses the premises solely for business purposes. As a result, the court classified expenses incurred by the employer to provide accommodation to the employee at the place of work—excluding business travel—as income within the meaning of Article 12(1) of the PIT Act, subject to income tax, from which the tax remitter must deduct an advance pursuant to Article 32 of the PIT Act.

Following this decision, the company lodged a cassation complaint with the Supreme Administrative Court, which resulted in the annulment of both the WSA’s judgment and the aforementioned individual interpretation. The ruling emphasised that in matters concerning benefits provided to posted workers, not only national legislation must be considered, but also EU law, including Directive 96/71 (the Posting of Workers Directive) and Directive 2014/67 (the Enforcement Directive). The Court held that domestic courts may not disregard these instruments when interpreting the relevant provisions, as has unfortunately often been the case in recent years.

The Supreme Administrative Court held that, according to the above-mentioned EU regulations, the remuneration of posted workers generally does not include the cost of transport or accommodation, and that such expenses should be borne fully by the employer, as they are inherent to the concept of posting. Furthermore, it stated that providing or reimbursing such costs to an employee cannot, under any circumstances, be considered as remuneration, since the benefits are incurred in the interest of the employer. The employee does not use or dispose of such benefits freely, but rather uses them for a specific, limited purpose. Therefore, the court concluded that even under national tax law, one cannot assume that such obligations should fall on the employee, thus burdening the employer with personal income tax responsibilities. The Court thus unequivocally applied the principle of the primacy of EU law. This judgment may mark a turning point in the negative jurisprudential trend in recent years concerning the taxation of such benefits. Moreover, it not only signals a return to earlier interpretations, but also enhances domestic case law by emphasising the relevance of EU law.

A Shift in Jurisprudence – What Benefits for Employers?

Having discussed the key elements of the Supreme Administrative Court’s ruling, the next question is what consequences this may have for employers going forward, and how it may impact future case law and individual tax interpretations. The ruling is certain to compel courts to place greater focus on the analysis of EU legislation, and will also increase and give real effect to the application of fundamental EU legal principles. Additionally, the ruling breaks away from the recent trends upheld by courts and authorities. From the employers’ perspective, the judgment may have the greatest influence on individual interpretations issued by the Director of the National Tax Information, as well as on potential complaints reviewed by administrative courts.

Employers seeking tax rulings after the date of this judgment may expect a more favourable approach from the National Tax Information. In cases of unfavourable rulings, they can also appeal to administrative courts, where jurisprudence may now lean more favourably based on the new judgment. Even employers already bound by negative rulings have instruments at their disposal. Polish tax law does not prohibit requesting a second interpretation. Accordingly, employers may attempt to obtain a new individual interpretation. The Tax Ordinance also provides for procedures to amend or revoke an existing tax ruling.

Furthermore, employers should be aware of upcoming changes in the rules governing individual tax interpretations, which will enter into force on 1 January 2024. The amendment introduces a five-year validity period for interpretations, meaning that all interpretations issued before 2019 will expire. Employers should therefore consider taking advantage of this change as well.

Summary

To summarise, the Supreme Administrative Court’s ruling of 1 August 2023 has given hope to employers posting their workers abroad for a return to a positive and more rational line of case law. It undoubtedly constitutes a break from the previous negative trend in taxing benefits such as accommodation, meals or transport in the context of posting. The ruling also offers hope that state authorities and courts will apply EU law in a more adequate and complete manner. Following the ruling, employers can expect more favourable decisions from the public administration and the judiciary. They also have several instruments at their disposal to pursue favourable interpretations. In the event of doubts or a desire to obtain a favourable decision or to challenge a previously issued negative one, it is advisable to seek the assistance of a law firm, which can advise on the most effective course of action in a given situation.