July 2022
A new decision from Finland’s Supreme Administrative Court regarding per diem and kilometre allowances as part of an employee’s total compensation package
Finland’s Supreme Administrative Court (hereinafter the SAC) issued a decision on 16 June, 2022, related to the tax treatment of per diem and kilometre allowances in cases where an employee is bound by a so-called ‘total compensation agreement’. In the SAC case, a sales representative’s salary was calculated by supplementing the base salary with commissions on sales and bonuses. The per diem and kilometre allowances that were paid to the sales representative as compensation for business travel were consequently deducted from this gross salary. The allowances were paid in accordance with the employment agreement and the Official Decision of the Tax Administration on Allowances for Travel Expenses.
In Finland, employers may pay daily allowances (per diems) to employees in order to cover reasonable increases in meal expenses and other living expenses incurred by the employees during temporary business trips to temporary places of employment. The reimbursement for these expenses is exempted from salary income tax, provided that the expenses claimed are exactly the same as what was actually spent, or provided that they are as defined in the Official Decision that is annually published by the Tax Administration. In addition, employers may pay tax-exempt kilometre allowances for travel to temporary places of employment. The rules regarding the tax exemption of travel cost reimbursements may also be applied in cases of international business travel.
The SAC issued a decision as to whether per diem and kilometre allowances may be deemed as tax exempt, even if they were not paid in addition to the salary agreed in the employment contract. Contrary to the decisions already made by the Adjustment Board and the Administrative Court at earlier stages of the appeal process, the SAC’s decision was that per diem and kilometre allowances were not to be regarded as taxable income for the sales representative. According to the Tax Administration’s written guidelines and tax practice prior to this decision of 16 June, 2022, the prerequisite for the tax exemption of per diem and kilometre allowances was that they must be paid in addition to the salary. The SAC pointed out that, on the contrary, the Income Tax Act does not impose any such conditions with respect to the tax exemption, assuming that these reimbursements are otherwise paid in accordance with the Income Tax Act and the Official Decision.
The SAC decision was not unanimous, but made by a simple majority, three judges in favour, and two against.
In Finland, employers may pay daily allowances (per diems) to employees in order to cover reasonable increases in meal expenses and other living expenses incurred by the employees during temporary business trips to temporary places of employment. The reimbursement for these expenses is exempted from salary income tax, provided that the expenses claimed are exactly the same as what was actually spent, or provided that they are as defined in the Official Decision that is annually published by the Tax Administration. In addition, employers may pay tax-exempt kilometre allowances for travel to temporary places of employment. The rules regarding the tax exemption of travel cost reimbursements may also be applied in cases of international business travel.
The SAC issued a decision as to whether per diem and kilometre allowances may be deemed as tax exempt, even if they were not paid in addition to the salary agreed in the employment contract. Contrary to the decisions already made by the Adjustment Board and the Administrative Court at earlier stages of the appeal process, the SAC’s decision was that per diem and kilometre allowances were not to be regarded as taxable income for the sales representative. According to the Tax Administration’s written guidelines and tax practice prior to this decision of 16 June, 2022, the prerequisite for the tax exemption of per diem and kilometre allowances was that they must be paid in addition to the salary. The SAC pointed out that, on the contrary, the Income Tax Act does not impose any such conditions with respect to the tax exemption, assuming that these reimbursements are otherwise paid in accordance with the Income Tax Act and the Official Decision.
The SAC decision was not unanimous, but made by a simple majority, three judges in favour, and two against.
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The information in this site has been prepared for general informational purposes only and it should not be used as a substitute for consultation with a professional tax, legal or other competent advisor. While we have made every attempt to ensure that the information contained in this site has been obtained from reliable sources, Effektiivi Oy is not responsible for any errors or omissions, or for the results obtained from the use of this information.
The information in this site has been prepared for general informational purposes only and it should not be used as a substitute for consultation with a professional tax, legal or other competent advisor. While we have made every attempt to ensure that the information contained in this site has been obtained from reliable sources, Effektiivi Oy is not responsible for any errors or omissions, or for the results obtained from the use of this information.
