Transnational posting of employees. Conditions and tax implications

I. Context

Although apparently, the issue of the allowance granted to posted workers seemed to disappear, in our practice we have observed that this control theme has reappeared in the framework of tax inspections.

Therefore, given the relevance of the subject, we have chosen to present both the procedures to be followed prior to the posting of an employee and our perspective on the tax qualification that should be granted to these transnational posting allowances and the current state of judicial practice in this matter.

For clarification, we note that we will refer strictly to the situation of posted workers in the framework of transnational services. Namely, those employees who, during the period of work performed abroad, remain under the subordination and coordination of the employing company in Romania, although they are performing work under a service contract concluded between the employer and a beneficiary in another Member State.

In this regard, we point out that in addition to the Labour Code, we are talking about the applicability of Law 16/2017.

II. Preliminary procedure for transnational posting

There are a number of steps to be followed in order to have employees posted.

The first concerns informing employees, in compliance with Article 18 of the Labour Code, about working abroad, which must include the following aspects:

• change of workplace:
• the duration of time when work is to be performed abroad;
• the currency in which the salary entitlements will be paid and the method of payment;
• benefits in cash and/or in kind related to the work abroad;
• climate conditions;
• the main labor law regulations of that country;
• the customs of the place whose non-observance would endanger life, liberty, or personal safety;
• the conditions of repatriation of the worker, where applicable.

According to Art. 17 para. (2) of the Labour Code, the employee must be informed of the changes in the employment relationship by concluding an additional document to the individual employment contract, containing the aforementioned information.

The second step prior to posting is to obtain the A1 portable document for each employee. This certifies the person's affiliation to the social and health insurance system in Romania for a maximum of 24 months. In the absence of this document, the employee would have to be registered with the host country's social security system, which is to be avoided.

Further, according to Article 3(3) para. (2) (m) of the Directive, of GD 905/2017, the transnational posting must be operated in Revisal prior to the first day of the activity in the host country.

We point out that under art. 8 para. (2)  f) of GD 905/2017, it constitutes a contravention and is punishable by a fine from 5,000 lei to 8,000 lei not to transmit these changes regarding the posting within the stipulated deadlines, i.e. prior to the first day of the activity in the host country.

III. Tax treatment of the transnational posting allowance

During the period of posting, in practice, we have noticed that the employer company grants a posting allowance in relation to the activity abroad, in order to counterbalance the inconvenience caused to the employee by his removal from his family environment, home, etc.

According to Article 8 lit. c) of Law no. 16/2017, during the whole period in which the employee performs transnational work in a Member State of the European Union (other than Romania) or in the Swiss Confederation, the posting employer must respect the minimum wage applicable on the territory of the host country.

However, Article 11 of Law No 16/2017, states at the present time that the compensation specific to transnational posting is taken into account in determining the minimum wage, since it does not cover the costs arising from posting - accommodation or transport, but only the posting’s inconvenience, without having a salary nature.

In interpreting this legislative text, the tax authorities considered that this posting allowance was part of the minimum wage and thus taxable income, both in terms of income tax and social security contributions.

However, the normative text defining the posting allowance, Art. 2 para. (1) letter h) of Law no. 16/2017, was expressly clarified on 16.07.2020 by Law no. 172/2020, establishing expressis verbis that the posting allowance is subject to the tax regime laid down in Art. 76 para. (2) letter k) of the Fiscal Code.

Thus, at present, the amounts paid to employees, other than accommodation and transport costs, in the event of their posting to another country in order to provide services undertaken by the employer, under their supervision, can be qualified exclusively as transnational posting allowances, compensation for the inconvenience of the employee's posting to another place, i.e. to another employer, which from a tax point of view fall within the regime provided for in Article 76(1)(b) (2) letter k) Tax Code.

The legislature has therefore made it clear that the posting allowance is included in the calculation of the remuneration paid to the employee solely and strictly for social policy reasons, in order to determine whether or not the minimum level of remuneration to be paid to an employee in the field in question in the host State is respected, by virtue of social anti-dumping policies.

However, this assimilation of the posting allowance to the minimum wage imposed by the host State must not have any tax effect.

As a result, the allowance is not taxable as long as it is below the limit of 2.5 times the legal daily allowance set by government decision for Romanian civil servants sent abroad on temporary assignments, which is currently EUR 87.5.

However, we stress the importance of ensuring that the benefit is paid in relation to the days actually spent abroad and not in relation to the days worked, the purpose being to compensate for the inconvenience of displacement from the family environment and the usual accommodation.

IV. Court practice

Analyzing the current guidelines set forth in courts’ practice, we note that they have also agreed with our view on the tax treatment of these posting allowances. It is ruled in favor of classifying the transnational posting allowance under the wording of Article 76(2) para. (2) letter k) Tax Code, as non-taxable, within the limit of 2.5 times the legal daily allowance established by Government decision for Romanian civil servants sent abroad.

We will now outline the main points of reference made by the courts:

• Civil decision no. 803/2021 of 21-Dec-2021, Court of Appeal Târgu Mureș

It follows from the decision ruling on the appeal that allowances granted during transnational posting which does not fall within the concept of expenses relating to transport, accommodation and meals are not subject to the regime provided for by Article 76(2) (2) letter k) Tax Code given the provisions of Law 16/2017 to the effect that they are considered part of the minimum wage.

In the light of the aforementioned legal provision, it is held that the reclassification of income by way of daily allowance, obtained by the appellant's employees and their taxation with the exclusion of the provisions of Article 76 para. (2) letter k) Tax Code must be based on minimum factual, objective elements, from which it can be seen that the economic operator did not intend to grant its employees amounts to compensate for the inconvenience caused by the secondment but strictly in order to bypass the tax legislation.

An analysis of the evidence in the file (travel orders and delegations, pages 109-171 of Volume I of the case file) confirms the appellant's arguments to the effect that the amount granted by way of daily posting allowance was determined specifically by the actual period during which the worker was posted to EU countries for the purpose of traveling abroad as a driver.

That method of determining and paying the daily posting allowance is fully consistent with its nature as an allowance intended to compensate for the discomfort caused by the worker's travel and is granted strictly for the period during which the worker was posted. The documents on file do not confirm the respondent's contention that the daily subsistence allowance was granted in relation to the days actually worked (and not in relation to the period of posting) and therefore represented compensation for the work performed by the worker.

In application of Article 296(4)(4) letter m of the old Tax Code and Art. 76 para. (2) letter k) of Law no. 227/2015, the Court finds that the amounts granted by the appellant to employees posted to EU countries by way of daily allowance during the period of posting, provided that they do not exceed the limit set by the legislator, are not subject to taxation and compulsory social security contributions so that the acts must be annulled.

• Rulling no. 3052/2021 of 26-Nov-2021, Cluj Court 

As to the legal nature of the sums of money paid by way of posting allowance to employees during their posting to Germany, the Court holds that Article 11 of Law No 16/2017 is applicable, according to which any allowance specific to transnational posting is considered to be part of the minimum wage, as long as it is not granted by way of reimbursement of the expenses incurred by the posting, namely transport, accommodation, and meals;

According to GD No 518/1995, the amount of the sum granted by public institutions to their own employees working in Germany may not exceed 35 euro/day. Therefore, employees of a private entity such as the applicant company do not owe income tax and social security contributions if the level of the amount received for having carried out paid work in Germany is up to a maximum of EUR 87.5/day/employee. The tax inspection team was therefore required to find that, up to the limit of EUR 87.5/day, the amounts paid by S _______________ to its own employees were to be regarded as deductible for tax purposes and to make a reassessment.

In the light of all the arguments set out above, the Court will, pursuant to Articles 8 to 18 of Law 554/2004, grant the applicant's action and annul the decision on the complaint.

• Ruling no. 166/2021 of 22-Dec-2021, Court of Appeal Oradea, contestation of administrative tax act (Administrative and tax litigation)

Therefore, the applicant lawfully paid the allowance specific to transnational posting to its employees and, since it did not exceed the minimum non-taxable limit laid down in the tax code, it is not subject to income tax or social security contributions set by the applicant.

Even though, according to the Community rules and the laws transposing them, the posting allowance is regarded as part of remuneration, under Article 11 of Law No 16/2017, it has a distinct tax regime, derogating from the tax regime applicable to income from salaries, according to the rules contained in the Tax Code read in conjunction with Article 2(2) of Law No 16/2017. 1(h) of Law No 16/2017, as indicated above.

Therefore, in the present case, the transnational posting allowance granted by the applicant is subject to the tax regime laid down in Article 76(1)(a) of Regulation No 16/2017. 2(k) of Law No 227/2015 and the limit laid down in GD No 518/1995, as the applicant claims.

V. Conclusions

Despite the reiteration of this control theme, we consider that following the intervention of the legislator on 16.07.2020 through Law no. 172/2020, the regime applicable to transnational posting allowances can no longer be subject to any interpretation by the tax authorities.

At present, it is clear that these allowances will follow the tax classification provided by Article 76(2) (k), being non-taxable up to the limit thus imposed.

Moreover, we note that court practice has also followed this line of reasoning, being consistent in annulling tax decisions establishing additional tax obligations in terms of income tax and social security contributions in relation to these allowances.

MAXIM/ Associates

Av. Alexandra Tomuța

16.03.2022