Legal opinion – taxation of travel expenses (PIT and CIT)
At the request of one of the local government cultural institutions, the law firm prepared a legal opinion on the tax consequences of a legal entity incurring travel expenses of individuals who are not its employees, but are traveling in connection with the activities of the legal entity.
Both the tax consequences under the Corporate Income Tax Act (CIT) arising on the part of the travel financier and the personal income tax (PIT) implications for the traveler were determined.
Payment of travel expenses by the financing party means that tax income arises on the part of the traveler, which, if the statutory conditions are met, can benefit from PIT exemption. The travel financier here acts as a payer of personal income tax. At the same time, he himself remains a corporate income taxpayer, who, as a rule, is entitled to include his expenses as a deductible expense.
On the rationale for the exemption from personal income tax of income from financing costs
travel of a non-employee and the conditions for qualifying this expense by the financing party as a deductible cost of its own income under the CIT Law will be determined by the adopted formula of cooperation between the legal entity financing the travel and the traveler. Indeed, this cooperation can be formal, contract-based, including paid.
There may also be a situation where the parties are in a non-contractual relationship. Each case requires a separate assessment under the tax laws. Incorrect determinations in this regard can result in negative consequences on the part of the taxpayer from the tax authorities, hence the importance of a detailed analysis of the relevant provisions each time.