Time to dole out the tax deductions
As you may recall, when the personal income tax (PIT) law was passed last year there was much uproar with regard to the amendment of the provision relating to the payment of per diems and the reimbursement of business expenses, which meant that only employees would be exempt from tax on receipt of such payments.
The uproar was such that, even before the new law came into effect on January 1, 2003, a ministerial decree was passed on Christmas Eve which, by waiver of the collection of tax due, effectively extended the privileged group from simple employees to employees and members of the board. Although this was indeed a step in the right direction, the decree's wording led to further confusion since it was impossible to pinpoint whether individuals hired under the terms of management contracts would generally fall into the group covered by the waiver or whether they would only qualify for the waiver if they were also appointed to the board.
In an effort to clarify the position once and for all, a second decree was passed on February 27, which became available only last week, superceding the previous decree. The wording of this one is even better than the last, and I would recommend it to all my readers as a little light relief at the end of a hard day at the office.
Without going through it all, it starts by giving the whole concept a new slant by explaining what it relates to (i.e., per diems and other related business expenses). And then it states that these thereafter will be referred to as "benefits". I have to confess that I have never actually thought of the concept of my employer reimbursing me for a taxi fare incurred in travelling to a client meeting as a "benefit." Perhaps I have been guilty of taking his generosity for granted.
Anyway, leading us into a new mindset with regard to the concept of a benefit, the decree then goes on to specify that (among others which are of less interest in the current context) such benefits will only qualify for the waiver from collection of taxes due if they are incurred "for the purpose of earning revenues." It does not, however, specify whose revenues. So, I guess that all non-employees are left to assume that the minister intended the waiver to operate whether the cost was incurred (and benefit received) for the purpose of earning revenues for the principal. But this is a minor point.
The best part comes in Article 2 of the decree, which I will try and translate in full:
"The waiver referred to in Article 1 does not apply to income referred to in Article 13, sections 2, 4, 6 and 8 (section 8 being of particular interest as it refers to service contracts umowy zlecenia) of the (PIT) law, if the 'benefits' were utilised as costs of earning revenues, by the tax payer receiving the 'benefit.'"
On the one hand, this is fairly logical since if I have deducted as expense from my taxable base, then I should not benefit from a waiver of tax on that amount as this would ultimately result in my obtaining a double tax benefit. On the other hand, if I incur costs directly as, for example, a service provider, then clearly I have two options. I either get a reimbursement from my principal, and the whole expense (courtesy of the extension of the waiver) is simply neutral to me from both a costs and tax perspective or I can say that the cost was mine and deduct it from my taxable base.
Looking at the wording of Article 2 of the decree, I would have to be in the scenario of both having my cake and eating it simultaneously. If having initially borne the cost myself and having deducted it from my own income, on what grounds would I then be seeking to receive a reimbursement? Alternately, if the cost is a business expense (for example, a plane fare, usually paid directly by the principal in the first instance), how could I possibly seek to treat the value as my own cost (since from a practical perspective the invoice will be issued in the name of the principal who paid it and not mine)?
This reminds me of a story which I heard recently, and which in part, I suspect, arose out of a taxpayer's concern that the next tax year might see the loss of most reliefs and exemptions from tax. The story relates to an entrepreneur who allegedly tried to pass his mother's supermarket checkout receipts through his books, most of them dated on a Saturday and many of them including such essential business items as nappies and tights.
He also produced two receipts from the same petrol station issued within half an hour of each other. One was for petrol and the other for diesel. While filling up his own car, he had picked up someone else's discarded receipt. The tax office suspected that he had also been collecting receipts from the floor around the supermarket tills. It is extraordinary the lengths some taxpayers will go to to reduce their ultimate tax liability!
Speaking of tax liabilities, I have not forgotten that tax-filing season is upon us. Watch this space, and in the next column I promise to remind you of the relevant issues and things to remember when preparing your annual return.
The uproar was such that, even before the new law came into effect on January 1, 2003, a ministerial decree was passed on Christmas Eve which, by waiver of the collection of tax due, effectively extended the privileged group from simple employees to employees and members of the board. Although this was indeed a step in the right direction, the decree's wording led to further confusion since it was impossible to pinpoint whether individuals hired under the terms of management contracts would generally fall into the group covered by the waiver or whether they would only qualify for the waiver if they were also appointed to the board.
In an effort to clarify the position once and for all, a second decree was passed on February 27, which became available only last week, superceding the previous decree. The wording of this one is even better than the last, and I would recommend it to all my readers as a little light relief at the end of a hard day at the office.
Without going through it all, it starts by giving the whole concept a new slant by explaining what it relates to (i.e., per diems and other related business expenses). And then it states that these thereafter will be referred to as "benefits". I have to confess that I have never actually thought of the concept of my employer reimbursing me for a taxi fare incurred in travelling to a client meeting as a "benefit." Perhaps I have been guilty of taking his generosity for granted.
Anyway, leading us into a new mindset with regard to the concept of a benefit, the decree then goes on to specify that (among others which are of less interest in the current context) such benefits will only qualify for the waiver from collection of taxes due if they are incurred "for the purpose of earning revenues." It does not, however, specify whose revenues. So, I guess that all non-employees are left to assume that the minister intended the waiver to operate whether the cost was incurred (and benefit received) for the purpose of earning revenues for the principal. But this is a minor point.
The best part comes in Article 2 of the decree, which I will try and translate in full:
"The waiver referred to in Article 1 does not apply to income referred to in Article 13, sections 2, 4, 6 and 8 (section 8 being of particular interest as it refers to service contracts umowy zlecenia) of the (PIT) law, if the 'benefits' were utilised as costs of earning revenues, by the tax payer receiving the 'benefit.'"
On the one hand, this is fairly logical since if I have deducted as expense from my taxable base, then I should not benefit from a waiver of tax on that amount as this would ultimately result in my obtaining a double tax benefit. On the other hand, if I incur costs directly as, for example, a service provider, then clearly I have two options. I either get a reimbursement from my principal, and the whole expense (courtesy of the extension of the waiver) is simply neutral to me from both a costs and tax perspective or I can say that the cost was mine and deduct it from my taxable base.
Looking at the wording of Article 2 of the decree, I would have to be in the scenario of both having my cake and eating it simultaneously. If having initially borne the cost myself and having deducted it from my own income, on what grounds would I then be seeking to receive a reimbursement? Alternately, if the cost is a business expense (for example, a plane fare, usually paid directly by the principal in the first instance), how could I possibly seek to treat the value as my own cost (since from a practical perspective the invoice will be issued in the name of the principal who paid it and not mine)?
This reminds me of a story which I heard recently, and which in part, I suspect, arose out of a taxpayer's concern that the next tax year might see the loss of most reliefs and exemptions from tax. The story relates to an entrepreneur who allegedly tried to pass his mother's supermarket checkout receipts through his books, most of them dated on a Saturday and many of them including such essential business items as nappies and tights.
He also produced two receipts from the same petrol station issued within half an hour of each other. One was for petrol and the other for diesel. While filling up his own car, he had picked up someone else's discarded receipt. The tax office suspected that he had also been collecting receipts from the floor around the supermarket tills. It is extraordinary the lengths some taxpayers will go to to reduce their ultimate tax liability!
Speaking of tax liabilities, I have not forgotten that tax-filing season is upon us. Watch this space, and in the next column I promise to remind you of the relevant issues and things to remember when preparing your annual return.
