Tax & Legal

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.

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.

According to a recent judgment of the Supreme Tax Court, the gratuitous transfer of shares to senior employees to secure continuity in succession is not taxable as income from employment. The court further noted that there was no automatic presumption that a share transfer to an employee was made in consideration for employee services rendered.

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.

The Supreme Tax Court held that the input tax on staff outing costs (Christmas get-together) ranking as an employee benefit cannot be deducted. If the employer receives services for so-called staff events, he is only entitled to deduct the input VAT on the underlying costs if the services do not exclusively serve the private needs of the employees of the company but are caused by the special circumstances of the employers’ business activity.

The Supreme Tax Court has held that an employer’s subsidy to a commercial caterer charged with running the staff canteen is a taxable supply in respect of a free-of-charge employee benefit. There is therefore no input tax deduction.