Tax Alert, 30 July 2014

On 24 July 2014 the Voivodeship Administrative Court in Warsaw gave a judgment (ref. no. III SA/Wa 27/14), according to which, performing duties of Management Board member without remuneration shall be regarded as additional income in kind.

The case concerns a Company, whose loss on business activities was reduced by the value of free-of-charge work of president of the management board (income in kind) by Head of Tax Office. The Head of Tax Office assessed the income of the Company in the amount corresponding to the remuneration of CEO. Company appealed the decision, claiming that president of the board was not providing any services, but performed only a corporate governance. Additionally, the Company indicated, that the president of the management board – who was rarely in Poland - did not take any actions with benefit for the Company and his signatures on documents were only plain formality.

Despite the Company's arguments, the Voivodeship Administrative Court had no doubts that the president of the management board should receive a remuneration for its services provided to the Company. Hence, the value of free-of-charge work shall be Company’s revenue.

Nevertheless, due to incorrect determination of the value of remuneration of the president of the board, which might not have been equal to the remuneration of CEO, the Court reversed a decision of the Tax Chamber, and ordered the first instance authority to examine the nature of the work of Management Board, as well as, the relationship between the president of the board, the parent company and subsidiary.

The judgment is not legally binding. A written justification has not been published yet.

Should you be interested in discussing above topic in further detail, please do not hesitate to contact Mazars Tax Advisory Department.