The employer will neither deduct nor charge VAT on providing entertainment for employees – judgment of the Supreme Administrative Court dated April 6, 2023, ref. I FSK 239/20
What was the taxpayer’s dispute with the Director of the KIS about?
The company applied for an individual interpretation, in which it indicated that it organizes entertainment trips for its employees (and accompanying persons). As part of organizing the trips, the company, among other things, purchases cinema or swimming pool tickets, transportation services, as well as catering services. The Company does not charge any fees to the participants of the trips. The costs of the trips are borne by the Company, with no funds from the Company Social Benefits Fund. The trips are optional for employees, and do not have a training or integration purpose (although the Company does not rule out that the trips may contribute to better integration of employees or increase their motivation to work). In the Company’s opinion, the benefits to employees from the aforementioned trips outweigh the benefits that the Company itself derives from them.
According to the Company, it is obligated to charge VAT on the said services, while at the same time it is entitled to deduct VAT on their purchase.
In an individual interpretation dated April 10, 2019, ref. 0112-KDIL4.4012.687.2018.2.HW, the Director of KIS found the Company’s position incorrect. According to the KIS Director, in the discussed state of affairs, the Company is not entitled to deduct VAT, and as a result, the gratuitous provision of these services by the Company is not subject to VAT. As a result of a complaint against the aforementioned interpretation, the Provincial Administrative Court in Poznań, in a judgment dated November 6, 2019, ref. no. I SA/Po 504/19, agreed with the Company. Due to a cassation complaint by the Director of the KIS against the above-mentioned judgment of the Voivodship Administrative Court in Poznań, the case went before the NSA.
In its ruling, the NSA pointed out that the dispute in the case in question concerns the interpretation of Article 8(2)(2) of the VAT Act, according to which gratuitous provision of services for personal purposes of the taxpayer or his employees, including former employees, partners, shareholders, shareholders, members of cooperatives and their household members, members of governing bodies of legal persons, members of an association, and any other gratuitous provision of services for purposes other than the taxpayer’s business activity is also considered to be a gratuitous provision of services.
According to the NSA, it is not disputed that the Company does not purchase the aforementioned services for the purposes of its business activity (i.e., their purchase is intended to satisfy the private needs of its employees).
At the same time, the NSA pointed out that if an entrepreneur purchases a certain good exclusively for private purposes, he does not act as a VAT taxpayer in this regard.
Therefore, since the Company purchases entertainment services in order to provide them free of charge for the private needs of its employees (accompanying persons), the Company should be treated as a consumer. In other words, the Company should bear the economic burden of VAT by not being entitled to deduct VAT on the purchased services. Consequently, the Company’s situation is analogous to the hypothetical situation of employees (accompanying persons) who would have purchased these services with VAT without the intermediation of the Company.
Consequently, the NSA held that the transfer of the aforementioned services would not be taxed under Article 8(2)(2) of the VAT Law, due to the fact that the Company is not acting as a VAT taxpayer in this case. According to the NSA, the above provision can only apply if the entity performing the gratuitous service made the purchases for the purposes of its business activity.
Implications of the NSA ruling for taxpayers
The judgment in question seems to be a very important voice on the issue of the correct treatment for VAT purposes of the issue of gratuitous employee benefits. The approach expressed in it should be assessed as rational and practical, leading to simplification of taxpayers’ settlements (no showing of VAT on the purchase as well as on the gratuitous benefit).