Participation in a team-building party does not constitute income for the employee.

Since March 2016, according to the regulation of the Minister of Finance, participation in a team-building event does not count as income for the employee.

“The Minister of Finance is correcting unfavorable interpretations regarding free employee benefits.”

Free benefits provided by the employer to employees have always raised serious interpretative doubts for both taxpayers and tax authorities.

The key date in the battle between taxpayers and authorities is July 8, 2014, when a crucial ruling for employees was made by the Constitutional Tribunal in case number K7/13. Since then, there has been a gradual change in the positions of tax authorities regarding the taxation of free employee benefits. The Minister of Finance often himself corrects earlier, unfavorable interpretations for taxpayers.

A particular point of contention was the income of employees who would gain by participating in a team-building event organized by the employer. In earlier tax interpretations, authorities quite categorically claimed that such an event generates tax income for its participants. However, this position now seems outdated.

On January 7, 2016, the Minister of Finance, in letter no. DD3.8222.2.330.2015.CRS, corrected an individual interpretation issued in 2011 on his behalf by the Director of the Tax Chamber in Poznań, interpretation No. ILPB1/415-531/11-4/TW. In the initially analyzed factual situation, the applicant purchased coffee, tea, sugar, and cookies that were used for board meetings, supervisory board meetings of the Cooperative, meetings with employees, and meetings with contractors. He also organized team-building events for employees. In this context, he questioned whether employee participation in team events and the provided refreshments constituted tax income for them.

Regarding employee refreshments, the authority confirmed the applicant's position, stating that the cost of food products consumed by employees does not constitute tax income for them. However, the authority considered that the tax situation is different when it comes to team-building events. In the issued interpretation, the authority stated that by participating in such an event, the employee receives tax income. This very position of the authority in this respect was corrected by the Minister of Finance two weeks ago.

At the beginning of the letter changing the interpretation, the Minister referred to earlier interpretative doubts regarding the taxation of free employee benefits. He cited the positions taken on this issue by administrative courts. In resolutions dated November 18, 2002, case No. FPS 9/02, and October 16, 2006, case No. FPS 1/06, the Supreme Administrative Court stated that under income tax laws, the term “free benefit” has a “broader scope than in civil law, as it encompasses all economic phenomena and legal events that result in a benefit at the expense of another entity, or all those legal events and economic occurrences in the activities of legal persons whose effect is an unearned, i.e., cost-free or any other form of equivalent asset increase for that person, having a specific financial dimension.”

Furthermore, the Minister pointed to the content of the cited article of the Constitutional Tribunal ruling. The Tribunal indicated interpretative guidelines useful in determining whether a particular benefit may constitute tax income for the employee. In the Tribunal's opinion, defining the essential characteristics of “other free benefits” as income boils down to qualifying the event considering the following criteria:

1) the benefit was provided with the employee's consent (voluntariness);

2) it was not provided in the employer's interest, but rather in the employee's interest, bringing a benefit (increasing the employee's assets, or not leading to an increase in liabilities - avoiding the obligation to incur expenses);

3) measurability of the benefit (attribution of the benefit to a specific, individualized employee).

The Tribunal, in its ruling justification, pointed out that the third of the indicated criteria – the possibility of attributing the benefit to the employee – is usually not met when the employee participates in a team-building event. In a situation where the employer offers employees the opportunity to participate in team or training meetings, even if the employee participates voluntarily, there is no benefit on their part, even in the form of saving an expense. Therefore, it is not possible to attribute income to such an employee.

When changing the interpretation, the Minister fully shared the Tribunal's position in this regard. The Minister emphasized that not every benefit provided by the employer for the employee, without established payment for it, is a benefit subject to income tax for individuals, and an example of such a benefit is offering the employee participation in a team-building meeting or taking part in it.

The change made by the Minister clearly indicates that the tax authorities have adopted the conclusions from the ruling issued by the Tribunal into their practice, signaling a change in the previous – unfavorable for employees – line of jurisprudence of tax authorities.

Anna Resiak, Mateusz Kozieł

Department of Tax Advisory at the Małopolska Institute of Tax Studies in Kraków

This article is for informational purposes only and is inspired by content from press articles, interpretations from tax authorities, and decisions of administrative courts. It does not constitute tax or legal advice within the meaning of Article 2(1) and Article 31 of the Tax Advisory Act (Journal of Laws of 1996, No. 102, item 475, as amended) and reflects the views expressed by the publication's authors. The Małopolska Institute of Tax Studies Ltd. does not take responsibility for any consequences of decisions made based on it.

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