Interpretation of the word służbowy revokes tax break for relocations
Having just moved offices, Im reminded of the stress that goes with any change of location like moving to a new country to take up a newly assigned position, in which case that stress increases to the nth degree. Little wonder that some companies pay relocation allowances, which are not solely intended to cover the costs of the move, but also to partially compensate for the upheaval your employer has wrought on your life.
In Poland, the Tax Land Authorities recognized the gracious and noble intentions of the employer, as well as the suffering of the transferred employee, and specifically exempted such a payment (up to 200% of the value of the individuals salary during the month of the move) from personal income tax under the provisions of Art 21.1 14 of the Personal Income Tax (PIT) Act.
But guess what? A Feb. 26 Supreme Administrative Court (NSA) ruling, reported in full only last week, has turned that idea on its head.
As a result, the following is now exempt from tax:
Amounts of money received by employees by reason of the reimbursement of costs of the transfer of those employees for business purposes and allowances for settlement and starting a new household (wow, new wife, new kids, the works?) following the transfer up to the level of 200% of the remuneration due to the employee for the month in which the transfer was effected.
Whats wrong with this? Well, the problem lies in one little Polish word, or rather the interpretation given to that word by the NSA służbowy.
Służbowo has always implied a business or work-related event. However, służba refers to service and not in the meaning of an independent contractor supplying services to his principal, but rather service in the meaning of someone who follows orders, such as a maid or a soldier or policeman.
What the NSA did was to interpret the phrase referring to the służbowy transfer using the second definition and stating that it was therefore limited (i.e. the tax exemption) to sums paid to the uniformed services in the event of a transfer away from their permanent place of residence.
The NSA based its arguments on the provisions of Art 10.1 1 of the PIT Act, which differentiates between an employment relationship and a służbowy relationship. It further states that the służbowy relationship is not governed by the terms of the Labor Code. In fact, the Labor Code is nowhere referred to and a służbowy transfer remains undefined. However, such a term is defined in the laws governing civil service, the armed services and the police.
I cannot believe that the NSAs interpretation can be correct, nor do I believe in the legislators interpretation when he included this provision in the PIT Act, particularly when there are numerous instances within the body of the Act where different tax treatment is afforded to various groups of individuals in specific circumstances. Let alone that if the NSA is correct in its interpretation that the exemption applies only to the uniformed services, i.e. individuals in the service of their principal and not protected by the provisions of the Labor Code, then the references to employees (i.e. individuals who are protected by the provisions of the Labor Code within Art 21.1 14 of the PIT Act) are at best confusing and at worst completely pointless.
Utterly and completely daft though the new article may be, we are nonetheless stuck with this ruling until such time as it is questioned and overturned. It is a ruling that the tax authorities can turn to and point to as evidence of an interpretation other than our own and as an argument against the position that the relocation allowance is and should remain exempt from tax.
Anna Szymańska is a tax senior manager in the Warsaw office of Andersen.
