From SAC case-law: Reimbursements related to recruitment exempted from tax
- Roman Burnus
- Vendula Florešová
On 26 January 2021, the Supreme Administrative Court (hereinafter the “SAC”) issued judgment no. 2 Afs 413/2018-34, which deals with the issue of taxation of travel cost reimbursements related to recruitment. A company enterprising in engineering production, which has its permanent staff and is also an employment agency, reimbursed employees upon their recruitment for their travel costs for the journey from their place of residence abroad to the location, where they would perform work (or from their regular workplace in the Czech Republic). Provision of reimbursement was treated in an internal guideline of the employer.
The subject of dispute was, if such reimbursement of costs is not taxable income of the employees. The company did not pay prepayments of income tax from employment from the paid reimbursements, because it assumed that this was not the employees’ taxable income. Based on a performed tax audit, the tax administrator assessed additional tax for the company for direct payment, claiming that these travel cost reimbursements may be exempted from tax only if provided by public employers defined in the Labour Code. The SAC decidedly rejected this opinion of the tax administrator, however, and in its interpretation it stated, among other things, that the regulation relating to reimbursements upon recruitment and transfer of employees can also be used in the case of employers in the corporate sector (although this regulation is systematically included in the Labour Code under reimbursements of employers in the non-entrepreneurial sector). Travel cost reimbursements are thus (if the conditions specified in the Labour Code, especially observance of the time limitation of payment for a maximum of four years, are met) exempted income for the employee up to the amount specified in the Income Tax Act and at the same time they are tax-eligible costs on the side of the employer.
The question of whether or not it is relevant if the place of residence of the employees is in the Czech Republic or abroad, was also disputable. Within this judgment, the SAC confirmed that no limitation of the term travel reimbursements to journeys made within the Czech Republic arises from the legislation and it is therefore also possible to pay them to employees with a place of residence abroad. This is therefore a ground-breaking judgement, because the financial administration had previously been rejecting such approach.
If you need our professional help with setting up travel cost reimbursements related to recruitment, we will be happy to help you.