Motivational programmes for employees – Head of the National Tax Administration indicates a possible application of the GAAR

On 1 August 2017, on the website of the Ministry of Finance, a message from the Head of the National Tax Administration (KAS) was published concerning the application of tax anti-avoidance regulations in relation to employee motivational programmes.

A vast number of the applications for individual tax rulings filed recently in relation to such programmes shared a similarly designed schemes, what caused the Head of the KAS to verify whether the schemes presented in the applications might result in the issuance of a decision with the application of GAAR due to their artificial nature, principally aimed at achieving tax benefits which are non-compliant with the subject matter, and the objective of the tax regulations.

In the information published, the Head of the KAS presented examples of assumptions of the motivational programmes, frequently presented in the analysed applications for individual tax rulings, which included, inter alia, the below listed:

  1. The employer grants its employees (usually from the management), participating in the motivational programme, financial instruments (a derivative) in the form of a right to obtain a sum of money in the future, which amount depended on the enterprise attaining specific financial factors, such as specific levels of growth, or sales.
  2. A participant in this type of motivational programme acquires this financial instrument free of charge, or for a symbolic amount.
  3. After the lapse of a specific period of time during which the participant of a motivational programme is an employee of an enterprise, the above financial instrument is settled by way of the payment of a sum of money to the employee.
  4. The payment of the remuneration is, therefore, artificially divided into two actions.

With respect to such schemes, the Head of the KAS indicated that they qualify for application of GARR with the reservation that the relevant assessments should be made taking into account the potential specifics of each individual case.

According to the Head of the KAS, the assessment of the circumstances of analysed cases indicates the motives of artificial actions by way of the creation of the construction of financial instruments (derivative instruments) aimed at achieving tax benefits consisting in the reclassification of remuneration under an employment relationship (in the form of a money bonus), from the progressive tax scale up to 32% to the source of revenues from capital gains, in order to apply the tax rate of 19%. These actions, consisting in the payment of cash settlements under the agreements concluded within the framework of motivational programmes, concluded between the organiser and the participants of the programme, can be motivated, according to the Head of the KAS, by an attempt to decrease the personal income tax rate to 19% in respect of that part of the remuneration which would otherwise be taxed, in the annual return, at the 32% tax rate. Consequently, this tax benefit could be regarded as contradictory to the objective, and the subject matter, of the PIT Act because, as pointed out by the Head of the KAS, the objective of this Act was to tax the income actually received under the employment relationship with a higher tax rate in a situation where a given taxpayer exceeds the specified income threshold during the settlement period, and to collect withholding tax during the tax year.

While presenting the above standpoint, it has also been pointed out that the position in question seems to be shared by the administrative courts, e.g. in the judgment of the Administrative Court in Poznań dated 30 May 2017, file: I SA/Po 493/17, suggesting that the presented scheme of actions fulfils the conditions for the justified application of the GAAR.

Given the above, the taxpayers applying for individual rulings, containing the described plan of actions, should be aware of the possibility that the tax authorities might refuse to issue a tax ruling with reference to the abovementioned argument.

Concerning the implemented motivational programmes, based on the transitional provisions, the tax rulings issued before the entry into effect of the GAAR regulations do not safeguard the position of the ruling holder from the application of GAAR with respect to the tax benefits achieved after 1 January 2017 resulting from the factual state (or a future event) presented in the rulings.

As a result of the above, the above-mentioned communication can, in practice, result in the tax authorities challenging the tax benefits achieved after 1 January 2017, in connection with the motivational programme implemented on the basis of earlier positive individual tax rulings.

In the context of the principles of the taxation of motivational programmes, we would also like to draw your attention to the amendments of the PIT and CIT Acts planned by the Minister of Finance and Development, concerning revenues achieved under these programmes from putting derivative financial instruments into effect, or from the exercise of the rights arising from the securities whose source were capital gains, and treating them as revenues under employment relationships, or individually conducted business activity. According to the positions of the representatives of the Ministry, the entry into effect of these changes is planned as of 1 January 2018.


The above article was first sent out as a newsletter on 3 August 2017. You can read the newsletter here.

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