Inland Revenue: tax regime for allowances for travel made using private means of transport

21 September 2022

In answer no. 405 of 2 August 2022, the Inland Revenue clarified the rules for taxation for allowances for employees using their private means of transport to travel outside the municipality where the company is based.

Regulatory references

The relevant legislation can be found in Art. 51, paragraph 1, of the TUIR which describes employment income as ” sums and values, received during the tax period, including employment-related donations”. This regulatory extract describes the all-inclusiveness principle which includes   sums and values received by the employee connected to the employment relationship, including expense reimbursements, net of the exceptions under the following paragraphs of the same article, in the employment income.

Paragraph 5 of Art.  51 of the TUIR regulates the tax regime of the allowances paid to the employee for transfers , outlining two different taxation regimes  depending on whether the services are performed within the municipality where the usual place of work is located.

If services are performed:

  • within the municipality, “the allowances or reimbursements of expenses […], except for reimbursements of transport costs proven by transportation documents, contribute to the income” and, are  subject to taxation;
  • outside the municipality, there are three distinct taxation regimes depending on the type of reimbursement that the employer intends to apply i.e.,  (i) lump sum, (ii) mixed and (iii) analytical. In the last two cases, reimbursements of travel expenses, including mileage and transport allowances, are not part of the income, if they are based on accurate documentation proving the expenses incurred or route chosen.

In Circular no.  326/1997, the Ministry of Finance clarified that, unlike expenses incurred for journeys made by public transport (e.g. air or rail) which can be documented by showing the relevant tickets, the expenses for journeys calculated using the employee’s private means, must be quantified by the employer based on direct and indirect concordant elements.

In its 30 October 2015 resolution, no. 92/E, the Inland Revenue clarified that:

  • it is not possible to set up new calculation systems alongside the cases identified by the tax legislator in Paragraph 5 of Article 51 of the TUIR, to define the amounts that are not part of the income and
  • the allowances paid for travel outside the municipality where the usual place of work is located may be excluded from the employment income calculation provided that the relevant amount is defined based on the ACI tables. This must consider the distance travelled, the type of vehicle used by the employee and the cost per kilometre assigned according to the type of vehicle.

The case

Under specific service requirements, the applicant authorises employees to use their private means of transport to carry out journeys. An allowance to compensate for the expenses incurred will be paid only if journeys are outside the municipality. This allowance must be equal to the expenses the employee would incur if they used a public means of transport and is paid based on the analytical consideration of the costs incurred. The allowance paid is in lieu of the expenses directly incurred by the employee using their own means of transport for the journey.

The applicant attached to the request for an opinion the internal circular on the compensation methods, which states that “the use of private means of transport may take place only if there are specific and exceptional service requirements and under the following conditions:

  • objective impossibility of reaching the workplace by public transport, due to a lack (e.g., places not reached by train or bus) or for objective scarcity of means that prevent the employee’s arrival within the travel service start time;
  • objective impossibility of reaching different workplaces during the same day using public transport;
  • Avoiding possible overnight accommodation costs by using a private means of transport

The circular states that the employee will obtain insurance cover from the company if they decide to use their private means of transport even if one of the above cases does not apply. The employee will not be entitled to compensation.

The Inland Revenue’s answer

The Inland Revenue said that compensation based on public transport fares if it is equal to or lower than the amount calculated based on the ACI tables is non-taxable.Such allowance will not be included in the taxable base for the employment income calculation.

When the travel allowance, calculated based on the public transport tariffs is greater than that based on the ACI tables, the difference must be considered as employment income under Art. 51 of the TUIR and is a taxable base for income and relevant taxation calculation purposes.

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