We have been recently encountering an increasing number of situations where as part of the sale of products and services companies provide their business partners not just with various discounts and turnover bonuses but also with all kinds of incentives targeting primarily the business partners’ employees, who are essential in the sale of products. Let us focus our article on these “motivational programmes” from the tax perspective.
The backwater of established practice has been recently stirred up in particular by the ruling of the Supreme Administrative Court (“SAC”) ref. no. 1 Afs 162/2018 Coll. The case handled by the SAC dealt with whether Československá obchodní banka, which provided the employees of Česká pošta with motivational contributions based on sales criteria, should increase the income paid out to Česká pošta’s employees to so-called “super-gross salary” for the purposes of calculating the tax base. The conclusion of the Supreme Administrative Court was favourable for the bank, since the SAC concluded that it had not been demonstrated that Česká pošta’s employees performed the activities directly for the bank, rather, the contents of the file indicated that the remuneration was for the performance of activities directly for Česká pošta.
However, we know from experience that not all motivational programmes are set up in a similar way as the case described above. We often come across situations where employees of business partners directly perform activities for the provider of the motivational programmes, while the business partner (their employer) often remains unaware. In such cases, the referenced conclusion of the Supreme Administrative Court about not increasing the tax base with the super-gross salary would probably not apply. At first glance, the payment of the 15% tax on dependent activities from the super-gross salary should not be a major problem for the organisers of the motivational programmes. However, what would be significantly more painful for them would be the fact that in addition to the obligation to pay tax on dependent activities from the income of the business partner’s employee, the motivational programme organiser would also become an “employer” in terms of the definition of insurance regulations, with the obligation to pay social security and health insurance contributions from the remuneration paid to the business partner’s employees. On the one hand, the provider includes the motivational bonuses in its tax-deductible expenses; on the other hand, the contributions related to the fiction of dependent activities would represent a more substantial burden for the motivational bonus provider in terms of costs.
Detailed assessment of tax implications pays off
Another thing that follows from the aforementioned ruling of the Supreme Administrative Court is that there was no indication of doubt that if the activities were performed for Československá obchodní banka, this company would be a payer of tax on dependent activities with the obligation to make personal income tax prepayments for the employees of Česká pošta. Therefore, if you organise any motivational plans and reward the employees of your business partner as part of these plans, we recommend conducting their detailed revision and careful assessment of the possible tax impact. We see a possible solution either in the adjustment of the conditions of the plan so that the obligation to pay contributions from salaries would be shifted to the business partner, or in the scope of the performance provided to the employees of the business partner and the transfer of this performance to performance exempt from tax.
The article is part of dReport – October 2019, Tax news; Grants and investment Incentives.