We are pleased to announce the launch of our new initiative – Quarterly Tax Litigation Report.

We have prepared this report to keep you updated regularly on the most significant and important tax disputes and court practice in this area. Our goal is to share our significant experience gathered from decades of practice with you.

This first edition is dedicated to fringe benefits taxation.

We are also delighted to invite you to a seminar on a similar topic "Tax and Labor Highlights in Employment of Local and Foreign Citizens" on 13 March 2014.

We trust you will find the information useful and interesting. Please contact us if you have any questions, we are always happy and ready to assist.

Case No.: 826/2617/13-а

Date of judgment: 13 August 2013

Court: Kyiv Administrative Court of Appeal

Substance of the case: Imposition of personal income tax on an extra benefit in the form of a business trip (an offsite training in Turkey) for a group of persons (employees and non-employees of the company).

Position of tax authorities: Expenses incurred by the company due to the organization of a business trip in the form of an offsite training in Turkey for a group of persons (employees and non-employees of the company) is an extra benefit and must be subject to personal income tax.

Position of the court: The trip to Turkey for 51 individuals, where 47 individuals are employees of the company and 4 individuals have no employment relations with the company, is not connected with the commercial activities of the company; it is not an international business trip and is purely of a tourism nature. Consequently, the expenses incurred by the company due to the organization of a business trip in the form of an offsite training in Turkey for a group of persons (employees and non-employees of the company) is an extra benefit and must be subject to personal income tax.

Arguments of the court: The court's point of view is based on the following arguments: 1) the claimant failed to submit any primary documents specifying the terms of reference, the purpose of the trip and the results expected, subject to the activities carried out by the company, and 2) pursuant to Article 121 of the Labor Code, only employees of the company may be assigned to a business trip.

Case No.: 813/7492/13-а

Date of judgment: 10 December 2013

Court: Lviv Circuit Administrative Court

Substance of the case: Imposition of personal income tax on an extra benefit as paying for (receipt of) fuel on weekends.

Position of tax authorities: Expenses incurred by the company to pay for fuel on weekends (according to time sheets) is an extra benefit of the company's employees and must be subject to personal income tax.

Position of the court: The conclusion made by the tax authority concerning failure to withhold and pay the personal income tax to the budget is groundless and unfounded.

Arguments of the court: The court's position is based on the following arguments: fuel has been provided to the employees due to activities of the company as evidenced by contracts for sale and purchase of fuel and lubricants, agreements for lease of vehicles, invoices for purchasing vehicles, invoices for purchasing fuel, operations with fuel cards, business trip orders and copies of foreign passports with border crossing stamps.

Case No.: 2а-9664/12/1370

Date of judgment: 1 April 2013

Court: Lviv Circuit Administrative Court

Substance of the case: Imposition of personal income tax on an extra benefit such as paying for roaming services.

Position of tax authorities: Expenses incurred by the company to pay for roaming services must be subject to personal income tax.

Position of the court: The personal income tax is personified, i.e. it must be deducted from the income of a certain individual, so any additional charge of the personal income tax is unlawful.

Arguments of the court: The inspection report contained no information about which employees used the roaming services or who received extra benefits.

Case No.: 2а-1670/8237/12

Date of judgment: 6 March 2013

Court: Poltava Circuit Administrative Court

Substance of the case: Imposition of personal income tax on an extra benefit such as paying for roaming services.

Position of tax authorities: Expenses incurred by the company to pay for roaming services must be subject to personal income tax.

Position of the court: Expenses related to paying for mobile communication services, including roaming services, are connected with commercial activities carried out by the company. The tax authority made an erroneous conclusion that the said expenses were aimed at financing personal needs of individual persons. Consequently, the cost of mobile communication services is not subject to personal income tax.

Arguments of the court: Since the company is founded by a non-resident, the company's commercial activities necessitate contacting non-residents in order to settle day-to-day issues related to the company's reporting, and for this purpose mobile communication can be used.

Case No.: 804/14/13-а

Date of judgment: 9 April 2013

Court: Dnipropetrovsk Circuit Administrative Court

Substance of the case: Imposition of personal income tax on an extra benefit such as payment for transportation of luggage (things) of non-resident individuals who are employees and former employees of the company.

Position of tax authorities: Expenses incurred by the company to pay for transportation of luggage (things) of non-resident individuals who are employees and former employees of the company is an extra benefit and must be subject to personal income tax.

Position of the court: Expenses incurred by the company to pay for transportation of luggage (things) of non-resident individuals who are employees and former employees of the company is an extra benefit and must be subject to personal income tax.

Arguments of the court: The arguments presented by the company were not confirmed during the case hearing and did not comply with the law.

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