Review of recent rulings on the taxation of welfare points

Companies gave employees a certain number of welfare points every year. Related to this, the issue of taxation of welfare points has recently attracted attention both within and outside the business community. The issue is not only whether welfare points qualify as earned income under the Income Tax Act, but also whether welfare points qualify as a value that is not included in the supply value for value-added tax. Up until now, companies have been treating welfare points as earned income and paying them in accordance with the opinion of the taxing authorities. Companies began to change their minds after the Supreme Court's decision(2016Da48785) denied that welfare points were considered wages under the Labor Standards Act. In the 2016 Da48785 ruling, In a case where an employer implements a flexible welfare program and allocates welfare points to its employees on a continual and regular basis based on collective agreements and employment regulations, it was denied whether the said welfare points constitute wages and ordinary wages under the Labor Standards Act. Since then, not only have there been rulings that welfare points fall under earned income, but there have also been rulings that say they do not. Although courts have not reached a consensus on cases with similar characteristics, it is likely that the Supreme Court will ultimately make a comprehensive decision. The ruling is expected to have a considerable impact not only on companies but also on workers. Leaving aside the debate over whether welfare points should be subject to taxation from a legislative perspective, I would like to examine whether they can be interpreted as included in earned income, which is subject to taxation under current law, based on recent high court decisions(2022Nu13617, 2023Nu10852, 2023Nu36536). In conclusion, earned income under the Income Tax Act is a broader concept than wages under the Labor Standards Act, and welfare points fall under earned income. However, it is not appropriate to treat welfare points differently from the welfare points of civil servants. Since it has been pointed out that the scope of taxation should not be expanded through interpretation, it is considered necessary to clearly stipulate tax requirements through legislation in accordance with the principle of tax legalism. However, the method of legislation will require further discussion.