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.
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:
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:
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:
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 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.