Obligation to Document the Cost of Transportation To and From Work – Yes, It Is Still in Force

Obligation to Document the Cost of Transportation To and From Work – Yes, It Is Still in Force

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At the beginning of 2019, employers and employees disapprovingly accepted a new obligation to document the cost of transportation to and from work and the situation is no different today.

Without formal amendment of regulations, the Ministry of Finance issued opinion no. 011-00-12/2019-04 on 1 February 2019, stating its position on application of tax regulations that significantly departed from the previous multiannual practice.

Namely, according to the opinion of the Ministry, in case of non-documenting the allowance for transportation to and from work by credible accounting document, the employee’s allowance on such basis shall be considered as undocumented expense by virtue of the Law on Corporate Profit Tax i.e. they shall not be acknowledged as expense in tax balance but rather included in profit tax base; it shall neither be subject to tax relief under Article 18 of the Law on Citizen Income Tax but rather to 10% salary tax.

According to general rule, opinions of administrative bodies are not binding (Article 80, para. 2 of the Law on Public Administration), however, provision of special regulation (Article 11, para. 3 of the Law on Tax Procedure and Tax Administration) stipulates that the acts on application of regulations from the responsibility of the Ministry of Finance (elaborations, opinions, instructions, guidelines etc.) shall be binding upon the actions of Tax Administration.

In practice, this means that Tax Administration inspectors shall diligently apply the opinion of the Ministry of Finance during tax control, and such opinion will thus become a binding rule without amendment of regulations. Considering that the complaints against the decisions of tax inspectors shall be resolved by the Ministry of Finance and that such complaints do not postpone the enforcement of decisions and that the legality of second instance decisions adopted by the Ministry shall be deliberated by the Administrative Court in administrative procedure that by default lasts several years, it is evident that employers needed to act quickly and to further regulate this issue by internal acts within their respective organisations.

Although the Ministry of Finance considered that the tax regulations may only interpreted and construed in the manner stated in their opinion, at the end of 2019 the Law on Citizen Income Tax was amended, among other in the part referring to tax reliefs, so as to specify that citizen’s income tax shall not be paid for reimbursement of documented costs of transportation to and from work.

After the initial opinion, the Ministry of Finance published several more opinions in the previous period that refer to the treatment of such payments. Here is what we have learned from these opinions:

  • Employers need to adapt internal acts – general enactment (Work Rules/Collective Agreement) and Rulebook on accounting and accounting policies, in order to regulate reimbursement of transportation costs to employees and to stipulate appropriate accounting documents suitable for registration of business changes (Opinions of the Ministry of Finance no. 011-00-12/2019-04 of 1 February 2019, 011-00-528/2019 of 16 July 2019).
  • Reimbursement of costs of transportation to and from work in line with the employer’s general enactment and employment agreement shall not be subject to payment of contributions for mandatory social insurance, regardless of the tax treatment of this reimbursement (Opinions of the Ministry of Finance no. 430-00-648/2019-04 of 17 January 2020, no. 011-00-141/2020-04 of 26 February 2020 and no. 011-00-391/2020-04 of 7 July 2020).
  • If an employer does not possess relevant valid documents that support the costs of employees’ transportation, but instead calculates and pays salary tax against such payments, thus paid reimbursement shall nevertheless be acknowledged as expense in tax balance for the tax period when it was paid, for the purpose of establishing profit tax (Opinion of the Ministry of Finance no. 011-00-00040/2019-04 of 3 June 2020).
  • Valid accounting documents shall be considered:
  1. if provided by employer:
  • In case of using personal vehicle (use of company coupons/vouchers/cards for gas purchase by employees at gas stations that employer is in contract with): single bill to the name of the employer, which would specify all individual gas amounts purchased by employees during one month, with accompanying list of employees who use personal vehicles for commuting to and from work (name and surname of employee, number of coupon/voucher/card for gas purchase);
  • In case of using public transportation (employer’s purchase of monthly prepaid cards for employees’ public transportation): single bill to the name of the employer, which would specify all individual monthly prepaid cards purchased, with accompanying list of employees who use public transportation for commuting to and from work (name and surname of employee, number of monthly prepaid card);
  • In case of using taxi (use of company vouchers/coupons/cards for using taxi services of taxi associations that the employer has a contract with): single bill to the name of the employer, which would specify all individual amounts of taxi fares used by employees during one month, with accompanying list of employees using taxi for commuting to and from work (name and surname of employee, number of coupon/voucher/card for taxi fares).

    2. if provided by employees:

  • In case of using personal vehicle: fiscal bill(s) for purchased gas, along with statement of employee that such bill(s) refers to the gas purchased by such employee for covering the costs of his/her commuting to and from work;
  • In case of using public transportation: fiscal bill(s) for purchased monthly/daily prepaid card(s), along with statement of employee that such bill(s) refers to the monthly/daily card(s) purchased by such employee for covering the costs of his/her commuting to and from work;
  • In case of using taxi: taxi bills along with statement of employee that the bills concerned refer to taxi fares used by such employee for covering his/her commuting to and from work.

(Opinions of the Ministry of Finance no. 401-00-02148/2019-16 of 5 June 2019 and no. 011-00-544/2019 of 16 July 2019)

Although a false interpretation of one opinion of the Ministry caused media to announce in mid-2020 that the obligation for cost documenting was abolished, such obligation is nevertheless still in force. Having in mind the amendment of the Law on Citizen Income Tax that stipulates that in order to exercise the right to tax relief it is necessary to document the costs of transportation, this obligation will remain in force until possible future amendment of regulations.

This article is to be considered as exclusively informative, with no intention to provide legal advice.
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By Ivana Ruzicic, Managing Partner, PR Legal