Lump-Sum Travel Allowances Under the Scrutiny of the SAC

In a recent judgment, the Supreme Administrative Court (SAC) revisited the issue of lump-sum travel allowances involving the employment agency Manuvia Weldhunters s.r.o. (in liquidation), which had been assessed additional personal income tax on employment. The core of the dispute was whether the amounts paid to employees constituted genuine lump-sum travel allowances under Section 182 of Act No. 262/2006 Coll., the Labor Code, and whether they therefore met the conditions for tax exemption pursuant to Section 6 Para 7 letter (a) of the Act No. 586/1992 Coll., on Income Taxes, or whether they were, in fact, disguised wages subject to taxation. The tax authority concluded—and both the Regional Court and the SAC subsequently confirmed—that it was not proven that the amounts corresponded to actual business trips.

Dispute Over the Scope of Evidence and the Nature of Allowances

The taxpayer argued that the tax authority had impermissibly expanded the scope of evidence. According to the company, the authority should have assessed only the setup of the lump-sum model, not the factual execution of the trips. The taxpayer also pointed out that agency employment inherently involves business trips and that the identified deficiencies concerned only specific employees and should not be applied to the entire system.

Conversely, the tax authority argued that the doubts were of a systemic nature, affecting not only the calculation of the lump sum but the very existence of the business trips themselves. It highlighted numerous inconsistencies:

• A lack of supporting data for the lump-sum calculation.

• Discrepancies between internal policies and the amounts actually paid.

• Illogical declarations of business trips in situations where employees lived at the place of work.

• Findings from user employers (clients) indicating that accommodation, transport, and meals were provided to employees through other means, further undermining the justification for travel allowances.

SAC: Lump-Sum Models Do Not Absolve the Burden of Proof

The SAC ruled clearly in favor of the tax authority, emphasizing that the mere existence of a lump-sum model does not automatically establish an entitlement to a tax exemption. The Court distinguished between two levels:

1. The Normative Level: How the lump sum is set up and calculated.

2. The Factual Level: Whether the employees actually performed the business trips to which the allowances relate.

The Court stated that these levels cannot be conflated; the taxpayer must be able to prove both. The SAC emphasized that travel allowances can only be tax-exempt if they represent compensation for expenses actually incurred. If it is not proven that a business trip took place at all, the legal grounds for providing the allowance are entirely absent.

Requirements for Lump-Sum Documentation

The SAC stressed that a lump-sum amount must be based on specific, verifiable data. It must be clear:

• Which specific types of reimbursements are included in the lump sum.
• Which sample of employees and which period the calculation is based on.
• The standard cost of business trips, taking into account the type of transport used.

Records of trips taken remain essential even when using lump sums, although the scope of such records may be simpler than in cases of individual substantiation. Furthermore, according to the Appellate Tax Directorate, the employer must respect the legitimate interests of the employee. For example, if an employee lives in Ostrava, it is not in their interest for the starting point of a trip to be set in Prague when the shift starts early in the morning back in Ostrava. Additionally, an employee is not entitled to a meal allowance (per diem) if they return to their place of residence after work.

Conclusion and Practical Impacts for Employers

In this case, the SAC noted that the taxpayer's errors were not accidental. The amounts paid did not match internal policies and were, in some cases, clearly disproportionate. The company failed to provide calculations for the lump sum, its arguments shifted throughout the proceedings, and the records provided were vague and contradictory.

The SAC also rejected the argument that the tax authority should have recognized at least a portion of the allowances. According to the Court, if the provided evidence fails to identify any part that meets the legal requirements, no partial fulfillment can be recognized.

Practical Takeaway: This judgment confirms that lump-sum travel allowances must always be supported by real economic substance. They cannot be used as a tool to replace a portion of the wage without a corresponding factual basis. Otherwise, there is a significant risk that the paid amounts will be fully reclassified as taxable income. The ruling thus fits into the established case law of the Supreme Administrative Court, which consistently emphasizes the importance of the actual substance of legal relationships over their formal designation.

This text was translated by AI