Giving gifts to employees can sometimes be costly from a tax perspective
A company that operates an amusement park was subject to a tax audit, during which the tax authorities focused on the free admission passes to the park that had been granted to merchants and their employees.
With regard to retailers,administration that the two free tickets offered to retailers who agreed to display advertising materials for the amusement park constituted consideration for a service rendered. According toadministration , VAT should haveadministration to the value of the tickets provided.
The Administrative Court of Appeals, however, ruled againstadministration . It held that the waiver of admission fees constitutes a gift not subject to VAT, as the consideration for the waiver is uncertain and very limited.
With regard to the free admission tickets provided to its employees by the company,administration determined that the company had engaged in an irregular business practice by granting them free access to the park. The company was therefore required to pay taxes on the profit it would have earned had it sold those tickets.
In addition,administration that the free admission tickets provided to employees had not been explicitly recorded in the books and constituted hidden benefits. They therefore imposed the penalty provided for in Article 1759 of the General Tax Code, which amounts to 100% of the sums paid to the employees.
The company will attempt to defend itself by citing a number of administrative comments which, in its view, demonstrate that there was no hidden benefit or thatadministration gifts to employees in connection with certain events.
However, the court was not convinced, and the company will therefore have to pay for the free tickets it offered to its employees:
corporate income tax on the value of the gifts
a fine equal to the value of the complimentary tickets
If you have questions about a corporate tax audit, please refer to our FAQs on corporate tax audits.