OPINION OF THE MINISTRY OF FINANCE – COMPENSATION FOR EMPLOYEES’ COMMUTING COSTS
On 1 February 2019, the Ministry of Finance issued an opinion on the tax treatment of the compensation for employees’ commuting costs
Regardless of the fact that the primary subject of the analysis was the issue of tax treatment of specific costs from the aspect of the Value Added Tax Law, the Ministry made a statement and provided an interpretation of the tax aspect of the above mentioned costs from the angle of the Corporate Income Tax Law, i.e. the Personal Income Tax Law.
Namely, according to the interpretation of the relevant Ministry regarding the tax treatment of commuting benefits paid by employers to employees, it is considered that if the compensation is not documented with a credible accounting document (e.g. bill for the purchase of a monthly ticket, a daily ticket or a ticket for one drive in public transportation, fuel bill in the case of using their own vehicle, etc.), payments to employees on a specific basis will be treated as undocumented expenses for the purposes of the Corporate Income Tax Law, while on the other hand provisions as defined in Article 18 of the Personal Income Tax Law cannot be applied. According to the opinion of the Ministry, and from the aspect of interpretation of the Value Added Tax Law, the above mentioned fee does not represent the subject of taxation in accordance with the provisions of this Law.
Considering that the relevant Opinion has provoked a storm of reactions and polemics of the general public, we draw attention to the following:
- The Ministry of Finance has also given statements in the previous periods, on the same bases, where in its Opinion (no. 011-00- 00016/2016-04 dated 7 June 2016), it gave an interpretation that the expenses presented in the books of account arising from commuting costs, in case when the above mentioned payments are documented by an appropriate accounting document (e.g. payroll), are recognized in the tax balance.
- The Ministry of Finance has provided interpretations of documented costs on a similar basis, which is governed by Article 18 of the Personal Income Tax Law, relating to the earnings of an employee in the form of an allowance for a business trip, both in the country and abroad, to which the employee is entitled to in accordance with a general enactment of the employer and which is payable up to the amount of the corresponding non-taxable amount. Namely, according to the Opinion of the Ministry (no. 011-00-712/2016-04 dated 13 February 2017), in this particular case the employer would not be obliged to document the costs that are reimbursed through the daily allowance.
- Furthermore, pursuant to Article 18 of the Personal Income Tax of 2015, it was defined that the salary tax is not payable on employee salaries based on compensation for transportation costs in the public transport (for commuting) – up to the amount of the actual costs of the monthly ticket, i.e., up to the amount of actual costs of transportation if there is no possibility to provide a monthly ticket. In accordance with the above mentioned norm of the Law, tax exemption based on commuting costs related exclusively to the costs incurred by providing monthly tickets in public transport, and the specific way of acting excluded the right to tax exemption of the commuting costs employees incur using any other means of transportation for commuting. This provision of the Law has led to major problems in practice, first of all bearing in mind the relevant provisions of the Labour Law, which imply the right of each employee to reimbursement of their commuting costs, while, on the other hand, the obligation to use public transportation has not been imposed. In accordance with the foregoing, in 2016, the legislator made certain changes to the wording of Article 18 paragraph 1 item 1 of the Personal Income Tax Law, which was later used to define the tax exemption based on the reimbursement of commuting costs – up to the amount of the cost of a monthly ticket in public transportation, i.e., up to the amount of actual transportation costs. In our opinion, by deleting the words that imply the use of public transportation, the intention of the legislator was to specifically expand the scope of the defined tax exemption to commuting costs incurred by employees, which do not exclusively include the costs of public transportation, bearing in mind that there are other means of transportation.
In our opinion, and relying on all of the foregoing, the interpretation of the Ministry of Finance in the particular case implies the obligation to document costs incurred on a specific basis, which is not controversial, however, the method of documenting the costs incurred in that manner can be independently determined by companies in their internal enactments.