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Can the new understanding of the Tax Authority regarding subsistence allowances change the practice of companies?

By 3 Abril, 2023Maio 4th, 2023No Comments

In November 2022, the Tax Authority (AT in portuguese – Autoridade Tributária) pronounced itself in the scope of a request for binding information on the attribution of transport allowance to workers regarding travel in own vehicle at the service of the company, which was only made available on the Tax Authority Portal last March.

In the scope of such binding information request, the AT clarified that the value of the transport allowance paid to employees for travelling by own vehicle at the service of the company is tax exemption up to the limit of 0.36€/kilometer, but that within this value it is also included the expenses of the employees with tolls and parking, which were usually considered by the companies as separate expenses. Therefore, all amounts paid to employees as a transport subsidy that involve the use and wear and tear of the vehicle, fuel, tolls and parking, will be subject to IRS if they exceed 0.36€/km.

First of all, it seems to us that we should analyze the legislative path that led to the stipulation of the value of 0.36€/km, which is exempt from taxation under the terms of article 2, no. 3, paragraph d) of the Personal Income Tax Code.

This article of the CIRS establishes that the following are considered income from dependent employment “(…) d) Subsistence allowance and the amounts received for the use of the employer’s own car in the employer’s service, in the part in which both exceed the legal limits or when the conditions for its attribution to public servants are not met and the funds for travel, travel or representation expenses for which no accounts have been rendered by the end of the fiscal year; (…)”.

Howeer, considering that there is no legal stipulation for the private sector as to the value to be attributed to employees for the use of a personal vehicle at the service of the employer, the civil service regime has been applied as the legal limit for the tax exemption.

At this point, we must analyze the legal regime of the civil service regarding the amount owed to employees for the use of their personal vehicle in the professional scope, which was established in Ordinance no. 1553-D/2008, of December 31.

The referred Ordinance established that the transportation subsidy to be paid to workers for transportation in their own car was 0.40 €/km, as of January 1st, 2009.

In December 2010, a set of additional expenditure reduction measures were approved with a view to the budgetary consolidation set out in the Stability and Growth Program (SGP) for 2010-2013, under which it was stipulated a 10% reduction in the amount of the transport subsidy.

And so, the value currently in force for the civil service (and which has been used for the limits of tax exemption in the private sector) is 0.36€/km.

Considering that there has been no change to this value for more than 12 years, one may wonder whether, with this interpretation by the AT of including tolls and parking in the value of € 0.36, in essence only part of the cost spent by the employee on travel in his own car will be exempt and whether it will be taxing the return of expenses actually incurred by the employee when using his private car for business travel.

In this sense there may be some disincentive for employees to use their own car at the service of their employer, as they consider that the conditions under which the value of 0.36€/km was stipulated have been exceeded by the reality of 12 years and that with the taxation of the excess value in the case of tolls and parking, they will basically be harmed.

This interpretation may cause some surprise on the part of companies whose practice has been different, however it should be noted that binding information is only binding on the tax authority to the taxable person (in this case the company) who specifically requested it and is valid for a maximum of 4 years (or less, if there is a supervening change in the factual or legal assumptions).

Thus, although for the remaining companies the binding information does not legally bind them to this understanding, it is a compass of AT guidelines that may help companies in dealing with these issues internally.

Filipa Lopes Galvão @ DCM | Littler