Giving gifts to contractors and employees, especially during the holiday season, is a common practice among businesses – as it allows them to build relationships or a positive image. Nonetheless, it is worth keeping in mind what restrictions exist, as well as obligations following the purchase and transfer of gifts.
Expense qualification
When analyzing the issue of a company’s Christmas gift expense, the first thing to decide is whether the taxpayer is entitled to deduct input VAT on such a purchase. This issue is regulated in the Value Added Tax Law, namely in Article 86, according to which, a taxpayer is entitled to deduct VAT to the extent that goods and services are used for taxable activities. If the gift is intended for the company’s employees – the employer has no right to deduct VAT on such a gift – this is the currently established line of interpretation. Such qualification is caused by the assumption that the gift received by the employee (Christmas, birth of a child, wedding, etc.) is used to satisfy his personal needs.
The qualification is slightly different in a situation where gifts are purchased in order to give them to contractors. Here it is considered that the expense is indirectly related to the performance of taxable activities – the provision of a gift contributes to maintaining relations with a given contractor, which (indirectly) affects the value of sales. Nevertheless, whether the activity/purchase is related to the performance of taxable activities should be analyzed on a case-by-case basis.
Free of charge transfer
Qualification of purchase made. What next? The issue of gifts is primarily related to the obligation to report a gratuitous transfer of goods, i.e. to pay output tax on such a transfer. This issue is regulated in Article 7(2) of the Law on Goods and Services Tax. According to it, the supply of goods shall also be considered a gratuitous transfer by a taxpayer of goods belonging to his enterprise if the taxpayer was entitled, in whole or in part, to reduce the amount of output tax by the amount of input tax on the purchase, import or manufacture of such goods or their components. The above clearly indicates that in the case of the purchase of a gift for an employee and the absence of the right to deduct VAT on this gift – at the same time there will be no obligation to pay VAT on the gratuitous transfer of goods (gift). However, it should be borne in mind such situations where input tax was deducted on the purchase of goods, because at the time of purchase the purpose of using the goods was related to the performance of taxable activities, but over time the taxpayer decided to give the goods as a gift to the employee.
In such a case, such a transfer should be taxed, as the taxpayer was entitled to reduce the amount of output tax by the amount of input tax on this purchase.
Similarly, the transfer of gifts purchased for contractors should be taxed, since, in accordance with the arrangements for the qualification of the expense, as a rule, the taxpayer is entitled to reduce output tax by input tax on such purchases. However, the legislator has provided here for possibilities allowing the transfer of a gift without the need to pay the output VAT on this transfer – they can be used in the case of so-called gifts of small value. A gift meets the small value criterion when:
However, it should still be borne in mind that the transfer must be related to business activities.
Summary
In summary, in the context of gift taxation, it is first necessary to assess whether input VAT is deductible on a given expense. If the deduction is allowed, it should be verified whether the gift meets the small value criterion. If the prerequisite for a gift of small value is not met, or if the taxpayer simply fails to take advantage of it, the gratuitous transfer of a gift, in connection with the purchase of which the taxpayer deducted input VAT, should be shown in the JPK return with the designation “WEW.” The tax liability date is the date the gift was transferred to the recipient.
