September 5, 2015
the framework of transnational provision of services a company may
require to post their workers to another EU Member State. Doing so, a
company shall comply with the regulations of that Member State,
including regulations concerning minimum rates of pay. Said
requirements are introduced with the Directive 96/71/EC of the
European Parliament and of the Council of 16 December 1996 concerning
the posting of workers in the framework of the provision of services,
hereinafter — the Directive.
given context it is the judgment No. A420573911 as of 28.04.2012. by
the Administrative district court of the Republic of Latvia,
hereinafter — the Judgment, that came our attention. In force since
19.05.2013 it concerns the definition of a "posted worker"
introduced by the Directive, hereinafter — the "posted worker".
In the course of adjudicating the matter the court established that
employer had been sending workers to Sweden, thus applying the
Cabinet regulations No.219 "Procedures for Reimbursement of
Expenses Relating to Official Travels", hereinafter — Cabinet
the law on Personal Income Tax and the Law on State Social Insurance,
the reimbursement of expenses related to official travels are not
subject to tax and mandatory social insurance contributions.
Accordingly, the employer did not pay taxes in relation to such
reimbursements paid to employees. State Revenue Service (hereinafter — SRS), however, had its own thoughts about it. SRS persuaded that
the employer wrongfully applied Cabinet Regulations because in this
particular case the posting of workers cannot be deemed an Official
Judgment remained in force the decision by SRS imposing obligation on
the employer to pay to income tax, social insurance contributions,
late payment interest and a fine, which altogether constituted more
than 700 000 euro.
only could give a more detailed assessment of the situation and
penalty imposition by SRS upon having the case files in hand, it is
the conclusions of the court what is most interesting about this
matter. To determine whether employer had the right not to pay taxes
in respect of the employee reimbursements, the court was required to
establish whether or not posting of workers to Sweden was an Official
Judgment clarifies that a distinction between an Official Travel from
posting of workers in the framework of services provision is based on
the permanent place of work, and namely, in case of an Official
Travel the place of work is located in Latvia, but in case of posting
of workers — in another Member State. So the court concluded that
employer had been posting workers, but not sending into Official
Travels, thus employee reimbursements are subject to taxation".
concludes that an "Official Travel" and "posting of
workers" are not identical definitions, and states that
"presence of workers in Sweden is to be considered as "posting
of workers" and because "posting of workers" is not an
Official Travel, hence the employer didn't have the right to pay per
diems to the employees".
interpretation of the law is doubtful. Contrary to the opinion of the
court, definitions "Official Travel" and "posting of
workers" shall not be considered conflicting due to several
reasons. It shall be noted that introduction of both definitions had
been caused with absolutely different circumstances. Moreover, both
definitions are aimed to regulate completely different legal
Travel means a journey of an employee for a specific time to
another populated area in the Republic of Latvia or to foreign states
in order to perform the work or service tasks. In return, within the
meaning of the Directive a "posted worker" means
a worker who, for a limited period, carries out his work in the
territory of a Member State other than the State in which he normally
works. Therefore, a worker travelling abroad for work purposes at the
request of the employer falls under both definitions, that of the
"Official Travel" and of a "posted worker".
vitally important to understand the reasons behind the appearance in
Latvian laws of the two definitions. An "Official Travel"
is introduced with the Cabinet regulations, which prescribe the
procedures for reimbursements relating to official travels, the norms
for the compensation of official travel expenses, as well as the
norms for the compensation for expenses relating to work travels. It
therefore appears that an "Official Travel" was
specifically introduced to regulate reimbursement of expenses of the
employees during work travelling.
closer look at the Directive it will appear that the main reason
behind it was the need to ensure healthy competition between entities
from different EU Member States and guarantee the rights of workers.
from the foregoing that both definitions were implemented to regulate
two completely different areas and, therefore, they cannot exclude
one another. The court's opinion that Cabinet regulations may not be
applied to a "posted worker" is not one to be agreed to.
the court's logic "posting of workers" will always exclude
the application of an "Official Travel" whenever employer
decides to send workers for work to another EU Member State in the
framework of transnational provision of services. This would also
mean that such employees posted to another Member State are robbed of
their rights to reimbursement of expenses, which they incur during
their stay in another country.