Tax advisor: The allowances for living expenses in Personal Income Tax

The Personal Income Tax (IRPF) regulations exempt from taxation the amounts allocated by the company to compensate the usual food and lodging expenses in restaurants, hotels and other accomodations, when the worker travels to a municipality other than his usual place of work and place of residence. However, there are specific exceptions (indicated in article 9.A.3.b of the Personal Income Tax Regulations) in which these amounts are subject to tax, for example, when the travel and stay extend for a continuous period exceeding nine months, not including vacation time, illness or other circumstances that do not alter the purpose of the travel (article 9.A.3 of the Personal Income Tax Regulations).

In this context, the Supreme Court has pointed out that, in general, what is essential to determine the taxability of these expenses is to verify whether the requirements established in the aforementioned regulations are met. The key elements to be considered are the effective displacement of the worker to a municipality different from that of his place of work and the continuity of this condition of “displaced person” for a period of more than nine months. The Supreme Court holds that the wording of the regulation is so clear that it does not allow adding more meaning than what is derived from its own terms, i.e., it is required that the displacement be made in an uninterrupted manner, without interruptions, and that it be maintained for a period of more than nine months.

In short, the calculation of the maximum period of nine months from which the amounts paid by the employer to compensate the usual expenses for food and lodging in a municipality other than the usual place of work and the place of residence of the recipient are taxed in the IRPF, must be continuous and without interruptions, regardless of the activity performed and its characteristics.

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