08.03.2023
CAN BONUSES BE GIVEN WITHOUT FEES
The management of a company is considering providing additional incentives to its employees upon reaching 5, 10, 15 and 20 years of service in the company in the form of a subject award and a travel voucher from a travel agency, with the amounts for different anniversaries being in different amounts. These benefits will be provided to all employees. Can these costs be defined as social costs according to the Law on Corporate Income Taxation granted under the Labor Code?
Pursuant to Article 204, Paragraph 1, Item 2 of the Law on Corporate Income Taxation, documented social expenses provided in kind to workers and employees and persons employed under a management and control contract (employees) are taxed with a tax on expenses. In this scope of social expenses provided in kind, the legislator explicitly includes: contributions (premiums) for additional voluntary insurance, for voluntary health insurance and for "Life" insurance (Art. 204, paragraph 1, item 2, letter "a") and the costs of food vouchers (art. 204, paragraph 1, item 2, letter "b" of the Law on Corporate Income Taxation).
The concept of "social costs provided in kind" is defined in item 34 of §1 of the Additional Provisions of the Law on Corporate Income Taxation, the criteria of which must be met at the same time in order for certain costs to be qualified as social and to be treated in accordance with Part Four "Tax on Expenditures" of the same Act.
According to §1, item 34 of the Additional Provisions of the Law on Corporate Income Taxation, social benefits reported as expenses under Art. 294 of the Labor Code and provided in the order and manner determined by Art. 293 of the Code can be defined as social of labor or by the management of the enterprise, provided that benefits are available to all workers and employees and to persons employed under a management and control contract. In the third sentence of §1, item 34 of the Additional Provisions of the Law on Corporate Income Taxation, it is stated that there is no provision of social costs in kind when there are monetary relationships in any form between the employer and the employees relation to social benefits received.
Pursuant to Art. 293 of the Labor Code, the way of using the funds for social, domestic and cultural services is determined by a decision of the general assembly of workers. Article 294 of the Labor Code regulates the social benefits that the employer can provide to employees.
The condition that social benefits are available to all workers and employees and to persons employed under a management and control contract must also be met.
In order for the social benefit to be accessible, it must be ensured that it can be enjoyed by all employed persons. Although they are derived from the legal relationship between the taxable employer and the employees, social benefits are not tied to the quantity and quality of the work performed, but aim to secure needs concerning the life and livelihood of the employees, which do not arise from and are not related to the employment from the persons position. The decision of the General Assembly of workers and employees or that of the management of the enterprise must contain parameters regarding the acquisition provided: content (type), scope of the entitled persons (all, including potential users), method of obtaining, value and limit of the acquisition. The criterion for social gain requires that its amount is not bound and does not depend on the position held by the person, on the work results achieved by him, the amount of remuneration or on the number of days worked, which are rather criteria for determining additional labor stimulation , and not for the allocation of funds for social, household and cultural services (in this direction is Decision No. 3311/23.05.2000 of the Supreme Administrative Court in administrative case No. 6438/99). Therefore, the value of social spending should be the same for everyone. When employees have different needs and interests, however, the employer may provide the opportunity to choose between alternative social benefits of the same value, which does not contradict the requirements of §1, item 34 of the Additional Provisions of the Law on Corporate Income Taxation.
In the hypothesis described in the inquiry, it concerns the provision of subject prizes and travel vouchers by a travel agency to employees (upon reaching 5, 10, 15 and 20 years of service) by the employer.
The very meaning of the word "award" implies that it is given when high, exceptional results or merits have been achieved in the labor activity in a specific employment relationship. The award is given by the employer as a sign of gratitude for long and conscientious service to him. The award is given to an individual or group of people in recognition of excellence in a given field.
Given the above, that the purpose of providing prizes and vouchers is for the benefit of certain persons, it follows that one of the cumulative requirements for the fulfillment of the conditions defining the concept of "social costs provided in kind" in the sense of §1, item 34 of the Additional Provisions of the Law on Corporate Income Taxation, namely to be available to all workers and employees and to persons employed under a management and control contract.
When there is no cumulative fulfillment of the conditions defining the concept of "social expenses provided in kind" in the sense of §1, item 34 of the Additional Provisions of the Law on Corporate Income Taxation, no tax should be determined on the expenses under Art. 204 , paragraph 1, item 2 of the Law on Corporate Income Taxation, and Article 205 of the Law on Corporate Income Taxation will apply. According to it, social costs that are not provided in kind, representing the income of the individual, are taxed under the conditions and in accordance with the Law on Taxes on the Income of Individuals.
Regardless of their in-kind nature, the benefits in question cannot be defined as social costs provided in kind, given the non-fulfillment of the "general availability" criterion. Social benefits are intended to secure the needs of the life and livelihood of the employed persons, and these needs cannot be made dependent on the position held by the person or the work results achieved by him.
From the information presented in the inquiry, it can be assumed that the specified benefits are not aimed at satisfying social and household needs, but are intended to reward (stimulate) certain persons for their work. In this situation, the costs of awards will bear the marks of costs for remuneration of the staff, respectively taxable income from employment relationships for natural persons.
In this case, the form of these incentives (rewards) - whether they will be tangible gifts or vouchers for an excursion, as well as their monetary equivalent, is irrelevant to the qualification of the expense.
In the event that the benefits in question are an incentive for achieved work results, they have the nature of additional labor remuneration, which is not defined as mandatory by a normative act. In this scenario, the provision of Art. 42, para. 1 of the Law on Corporate Income Taxation is applicable, according to which the expenses representing income of local individuals under the Law on Taxes on the Income of Natural Persons, which have not been paid as of December 31 of the current year, are not recognized for tax purposes in the year of their accounting. Unrecognized expenses pursuant to Article 42, Paragraph 1 of the Law on Corporate Income Taxation are recognized in the year in which the income is paid, up to the amount of the paid income (Article 42, Paragraph 3 of the Law on Corporate Income Taxation).
