Monetary contribution to employee vacation: taxable income

In the case in question, an employer provided an employee with a monetary contribution to cover expenses demonstrably incurred on their vacation.

The District Social Security Administration (DSSZ) considered the contribution paid by the employer to be the employee's taxable income that had to be included in the assessment base for the social security premium, as the employer did not observe the requirement that the payment be non-monetary, which is one of the conditions for tax exemption on the part of the employee.

The Regional Court sided with the employer, concluding that a non-monetary benefit to an employee which is exempt from income tax can take two forms: the provision by the employer of services or goods acquired as defined by the law, or the provision of a contribution for such purposes, i.e., the employee purchases the benefit themselves and the employer merely provides them with financial resources for this specific purpose, either in advance or against expenses already demonstrably incurred. The District Social Security Administration lodged a cassation complaint against the Regional Court's decision with the Supreme Administrative Court.

The SAC did not fully agree with the Regional Court's conclusions. According to the SAC, the essence of a non-monetary benefit, apart from its limited purpose, is also the form in which it is provided. A non-monetary benefit is by nature a benefit that is not provided in money or is not exchangeable for money or other similar means or benefits.

The SAC concluded that non-monetary benefits in this sense can only be those where the employer pays sums of money to a person other than the employee and their family member (unless the employer themselves is the provider of the recreational facility) and that person then provides a benefit or service to the employee. This is the only way to ensure that the benefit is treated as exempt from income tax and therefore not included in the assessment base for the social security premium.

The SAC did not consider it appropriate to apply the provision of the Income Tax Act regulating sums received by an employee from an employer as advances to be paid by the employee on behalf of the employer. Its application is prevented by the provisions being mutually exclusive: one stipulates the exemption of the employee benefit from income tax, while the other excludes the supply from being subject to income tax. The SAC decision confirms the state authorities' interpretation of what is to be considered a non-monetary benefit to an employee from an employer under the Income Tax Act for the purposes of the exemption of certain benefits from income tax, where the non-monetary form of provision is required.