Does the employee Christmas Eve party constitute income of the employee?

More and more often, employers are deciding to organize Christmas Eve dinners at Christmas time. They must, however, ensure the correct settlement of these costs. The thing that raises the biggest doubts, is the question of whether the employee's participation in the company Christmas Eve dinner constitutes taxable income?

Is the Christmas Eve dinner a non-financial benefit for the employee?

On July 8, 2014, the Constitutional Tribunal clearly defined which of the gratuitous employee benefits are subject to tax. In light of the verdict issued by this body, an employee's income includes any gratuitous benefits, which they used exclusively voluntarilly and which was provided for their direct benefit. It must also have a measurable monetary value and be offered to a specific individual employee.

It is therefore easy to deduce that an employee's participation in a company Christmas dinner does not meet these requirements. Firstly, it is not done in the interest of the employee, secondly, it does not provide tangible benefits, and finally it is not directed specifically at the individual employee. In view of all this, it must be clearly stated that a company Christmas Eve dinner does not constitute income for the employee. Therefore, there is no obligation on the employer to pay an advance on income tax.

Classifying a company Christmas Eve dinner as cost of revenues

Art. 23. 1 of the PIT Act stipulates that the taxpayer has the right to include as costs all expenditures that are aimed at obtaining revenues. These also include expenses that serve to preserve or secure revenue sources. The first step, therefore, should be to considered whether the expenses related to the organization of the employee Christmas dinner fall within the definition of tax deductible costs.

In order for this to be the case it should be evident that the purpose of such a dinner was in fact:

•  to promote integration of employees,
•  to provide increased motivation for employees to achieve their goals/targets,
•  to improve the general atmosphere among employees.

By assumption, the organization of an employee Christmas dinner has an effect on the increase of work efficiency, and this in turn leads to higher revenues. It is worthwhile for the employer to prepare relevant documentation, which will describe the course and purpose of the event. The tax authorities may require the employer to show whether the company's Christmas dinner met the aforementioned conditions and such documentation will allow the company to easily prove that this type of event was indeed a revenue related expense.

For a long time doubts arose whether participation in the annual Christmas dinner is a taxable benefit for the employee, and thus whether it constitutes the employee's taxable income. As has already been mentioned, in 2014 the Constitutional Tribunal resolved this issue. It is important, however, to show that the event was not organized in the personal interest of a particular employee. The argument that speaks in favor of the employee, and thus contradicts the assertion that the company's corporate dinner constitutes an employee's taxable income, is the fact that it is impossible to estimate the specific value of this type of benefit.