Tax & Legal

In a judgment published today the Supreme Tax Court clarified that companies can cover the costs of farewell parties for departing employees without incurring tax disadvantages as long as the event is organized as a company event.

In a recent circular, the Federal Ministry of Finance (MoF) comments on the question of how expenses for safety measures borne or reimbursed by the employer for employees who are exposed to a specific risk due to their professional position are to be treated for wage tax purposes. The detailed circular was issued with reference to the outcome of discussions with the highest tax authorities of the German Federal States.

Following a polish request for a preliminary ruling the European Court of Justice held that an employee using employer’s details to issue fake invoices is liable for VAT incurred thereon. Such is the case if the employer, who is a taxable person for VAT purposes, has exercised the due diligence reasonably required to monitor the conduct of its employee.

The Supreme Tax Court decided that the taxable benefit from private use of a company car may not be reduced by parking costs borne by the employee. The provision of a parking space or garage free of charge is considered separate to the benefit in kind of using a company car for private trips.

In a recently published decision, the Supreme Tax Court has, in some aspects, facilitated the tax recognition of employee-financed pension commitments for shareholder managing directors of a limited liability company (GmbH) but at the same time it also set some limits.

In a recently published decision, the Supreme Tax Court clarified that the interpretation of a “permanent establishment” for business owners and self-employed individuals set forth in Section 4 (5) Sentence 1 No. 6 Income Tax Act and which differs slightly from that in Section 12 of the General Tax Code remains also applicable after the introduction of the new travel expense regulations in 2014 (Act on the Amendment and Simplification of Corporate Taxation and Tax Rules Governing Travel Expenses from 20 February 2013).

A foreign permanent establishment of a legally independent person resident in Germany cannot be viewed as employer. This was decided by the Supreme Tax Court in a recent judgment regarding the double tax treaties with the Netherlands, Japan, the UK, Spain, Australia, Ireland, Belgium, Switzerland, Italy, Denmark, Canada, Singapore, Norway, Greece and France.

Recurring remuneration from an employee's mandatory employee profit participation right (PPR) is not generally covered by the provisions of Section 19 (1) sentence 1 no. 1 Income Tax Act (ITA) for income from employment. This was decided by the Supreme Tax Court in a most recently published judgment.

An orchestra musician employed by a public corporation in the Grand Duchy of Luxembourg is an artist within the meaning of Article 16 (1) of the double tax treaty between Germany and Luxembourg. The Supreme Tax Court has recently decided that his salary is taxable in Germany as income from employment with a credit of the tax paid in Luxembourg.

According to a recent decision of the Supreme Tax Court, the energy price allowance paid to employees in 2022 is taxable as income from employment. Section 119 para. 1 sentence 1 Income Tax Act, as contested by the plaintiffs, is not unconstitutional.

In a most recently published judgment, the Supreme Tax Court held that a self-employed person is considered to maintain two households only if he or she maintains a separate household outside the location where he or she primarily carries out his or her business activities and also resides at the location where he or she primarily carries out those activities. In any case, the primary focus of the entire business activity of a self-employed person is at the place where he or she pursues the sole business (permanent establishment) in the context of Section 4 (5) Sentence 1 No. 6 Income Tax Act.

The European Court of Justice held that the issue of vouchers for third-party retailers to employees by a taxable person as part of a recognition program for high-performing employees do not constitute a supply “for the private use of the entrepreneur or for that of his staff or, more generally, for purposes other than those of his business” within the meaning of Article 26(1)(b) of the VAT Directive.

A draft cabinet bill, which has not yet been officially published, has now been submitted by the CDU/CSU and SPD proposing an amendment to introduce a temporary tax exemption in Section 3(11d) of the draft Income Tax Act for so-called “relief bonuses” of up to EUR 1,000 paid by employers

A provision for contingent liabilities (for payments in arrears) must be recorded in the tax accounts for the employer's obligation to grant paid time off (two days per year of service) which is available to employees who are at least 60 years old and have been with the company for at least ten years. With its decision the Supreme Tax Court contradicts the previous view of the tax administration.

The Supreme Tax Court ruled that the provision of seats in a VIP hospitality lounge (VIP box) free of charge to business partners and employees constitutes a benefit in kind that may be taxed at a flat rate in accordance with Section 37b of the German Income Tax Act. The benefit in kind was by way of the use of the individual VIP box seat. Expenses relating to empty seats are not to be considered.

In its judgement of 21 June 2022, published on 3 November 2022, the Supreme Tax Court decided that remuneration paid by an employer to its employees for advertising by the employer on the licence plate mounting frame of the employee's private car is remuneration for work if the "advertising rental agreement" concluded does not have an independent economic content.

Recurring remuneration from a typical silent partnership between the employee and the employer company is taxable as capital investment income within the meaning of Section 20 (1) No.4 Income Tax Act and not separately as commercial income or income from employment.

In a recent judgment, the Supreme Tax Court held that the plaintiff, as a self-employed marine and harbor pilot, does not maintain a permanent establishment within the meaning of Section 4 (5) Sentence 1 No. 6 of the Income Tax Act. Therefore, the deduction of business expenses for travel costs is not limited to the mileage allowance.

The Supreme Tax Court ruled that free or subsidized accommodation and meals provided by the employer in connection with preventive health services are generally not tax-exempt under Section 3 No. 34 German Income Tax Act.

The Münster Tax Court decided that the income from work carried out in prison by a person placed in preventive detention is subject to income tax as remuneration from employment.