How to settle the tax on gifts for employees given on special occasions?

Giving small gifts to employees on special occasions is now a standard practice in many companies. Employers more and more often give gifts to their employees on the occasion of their birthday, name day, wedding or birth of a child.

Should such a gift be included in the employee’s income and should an appropriate advance payment of income tax be charged?

This subject has been raised many times by the organs of the state administration. So far, the most widely used approach is based on the judgment of the Constitutional Tribunal of 8 July 2014, ref. K 7/13, which states that the qualification of benefits received by an employee as income subject to personal income tax (PIT) depends, among other things, on whether:

• the employee took advantage of the benefit offered by the employer entirely voluntarily;
• it was in the interest of the employee;
• if there was no benefit from the employer, the employee would have to bear the expense on their own.

The new individual interpretation published in March 2021 by the Director of the National Tax Information does not bring revolutionary changes to these conclusions, however, it approaches the subject from a slightly different perspective. The authority states that gifts given by an employer which are not related to work performed or its results – are subject to inheritance and gift tax, so the provisions of the Personal Income Tax Act do not apply to them.

Gifts for employees given on special occasions are not subject to PIT, but to inheritance and gift tax

Gifts given by an employer to a particular employee as a form of congratulations, celebrating important occasions in their life, which have no connection with the work performed or its results, are not subject to PIT, but to inheritance and gift tax¹.

The actual state
The applicant employs staff and is therefore liable to personal income tax. She gives gifts in the form of a blanket and a baby bodysuit with the company logo to each employee on the birth of their child. Giving a gift is a form of congratulation, recognition of an employee on the occasion of an important event in their life, namely the birth of a child.

The reason for giving a gift to an employee is only to celebrate the birth of their child and to please them on this important day, and is not related to their work or its results.

The applicant pointed out that giving gifts is a common practice in the company, not regulated by internal company policy. Therefore, the employee has no claim against the applicant for the gift.

The applicant does not exclude the possibility that in the future she may consider recognizing employees with small gifts on other occasions unrelated to work, e.g. weddings.

The applicant stated that until now she has treated gift-giving as an additional benefit connected with an employment relationship, adding its value to the income from the employment relationship and charging an advance payment of income tax on this benefit, but then she began to have doubts as to whether it was correct.

Decision of the competent authority
The authority stated that the applicant should not charge an advance payment of income tax on such a gift.
The authority, referring to the judgment of the Constitutional Tribunal of 8 July 2014, ref. K 7/13, indicated that not all benefits received by employees from employers can be considered as income within the meaning of the Act. The Court pointed out that it is obvious that employers (except in the exceptional circumstances) do not give gifts to their employees, but at the same time it is also obvious that remuneration for work may take the form not only of money, but also of various kinds of benefits which, even if not included in the employment contract, are in practice considered to be a part of it.

Gifts given by an employer to a particular employee as a form of congratulations, celebrating important occasions in their life, which have no connection with the work performed or its results, are subject to inheritance and gift tax.

In view of the above, as income subject to the provisions on inheritance and gift tax is excluded from PIT (Article 2(1)(3) of the PIT Act), the value of the gifts given by the applicant to her employees, e.g. on the occasion of the birth of a child, does not constitute income from an employment relationship within the meaning of the PIT Act. Consequently, the applicant does not have to determine, charge and make an advance payment of personal income tax.

¹Individual interpretation of 2 March 2021, No. 0115-KDIT2.4011.868.2020.1.MD

Source: Article prepared by our co-operation partner TaxaGroup

If you have any further questions or require additional information, please contact your business relationship person or use the enquiry form on the HLB Poland website.

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