Important general tax ruling of the Minister of Finance on outstanding social and health insurance contributions

Remitter’s payment of outstanding social and health insurance contributions in the part in which they should be financed by the employee or contractor does not give rise to income for them within the meaning of Article 11(1) of the PIT Act – the Ministry of Finance has published a general tax ruling

On 30 March 2023, the Minister of Finance issued general tax ruling No. DD3.8203.1.2023 concerning the tax consequences in personal income tax of the payment by the remitter, from its own funds, of the amount of outstanding social and health insurance contributions in the part in which they should be financed from the income of the employee, contractor, former employee or former contractor.

Contradictory positions of tax authorities and administrative courts

PIT remitters have repeatedly asked, in requests for advance tax rulings, whether their payment of outstanding social and health insurance contributions from their own funds, in the part in which they should be financed from the income of an employee, contractor, former employee or former contractor, will give rise to the income for the taxpayer as referred to in Article 11(1) of the PIT Act.

The Director of the National Fiscal Information presented the position that such an action will result in the taxpayer’s income qualified as income from an employment relationship (Article 12(1) of the PIT Act), income from a mandate agreement (Article 13(8) of the PIT Act) or income from other sources (Article 20(1) of the PIT Act). This, in turn, gave rise to the consequences in the form of the remitter’s obligation to collect an advance on income tax, and in the case where the outstanding contributions were paid by the remitter to a former employee or a former contractor – only the notification obligation consisting in the preparation of a PIT-11 form and indication in it of income from other sources obtained by the taxpayer on account of payment of outstanding contributions.

A different position was presented by administrative courts – in the judgments issued, the prevailing line of interpretation was that the remitter of contributions, by paying the outstanding social and health insurance contributions for the taxpayer from its own funds, does not provide any material gain for the taxpayer. The courts indicated that regardless of the source of financing of these contributions the entity liable for the outstanding social security and health insurance contributions is the remitter of the  contributions (employer or principal) and not the insured (employee, contractor, former employee or former contractor).

General tax ruling by the Minister of Finance of 30 March 2023, no. DD3.8203.1

In the general tax ruling issued, the Minister of Finance concurred with the position presented by the administrative courts – the Minister considered that the remitter’s payment of outstanding social security and health insurance contributions relating to employees, contractors, former employees or former contractors does not give rise to income on the part of these taxpayers within the meaning of Article 11(1) of the PIT Act. The remitter’s payment of the outstanding aforementioned contributions does not provide any material gain for the taxpayer and, as such, cannot be considered as a gratuitous consideration for the taxpayer.

Remitter’s inability to recognize expenses for payment of outstand contributions – in the part in which they should be financed by the employee or contractor – as tax deductible costs

In the general tax ruling, the Minister of Finance also emphasised that the costs incurred for the payment of outstanding social and health insurance contributions – in the part in which they should be financed by an employee, contractor, former employee or former contractor – cannot be recognised by the remitter of these contributions as tax deductible costs within the meaning of Article 22(1) of the PIT Act or Article 15(1) of the CIT Act.