The Supreme Court, in its ruling 96/2020, dated 29 January 2020, allowed an appeal on a point of law, stating that it is up to the employer to justify the exemption of the allowances paid to its employees to the Administration.
A few years ago, the Inland Revenue initiated a verification of the exemption of allowances paid by companies to their employees. In this way, it required individuals to prove that the expenses and travel for work purposes had been declared exempt by the paying companies. In view of the difficulty in obtaining the vouchers, the Tax Agency proceeded to pay the taxpayer the allowances as taxable under personal income tax.
Faced with this situation, numerous claims and appeals have been made by employees. Finally, the High Court has issued a judgment in which it considers that the duty of the worker is limited to completing his declaration by providing the certificates of earnings and deductions issued by the company, and the burden of proving the reality of the displacements and of the expenses of maintenance and stay in restaurants and hotels, and other hotel and catering establishments falls on the employer.
Therefore, the administration must address the employer to justify that the amounts paid correspond to trips made on a certain day and place, for reasons or because of the development of their work activity.
With this ruling the Court settles the debate on who should justify the exemption, establishing that the burden of proving to the tax authorities the reality of the allowances paid to their workers lies with the employers. Therefore, the Administration cannot require the worker to justify the veracity of these expenses declared as exempt in the Income Tax.
Consequently, we recommend that entities have the documentation justifying both the travel and the expenses incurred for the payment of these allowances in order to face possible verifications.