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Changes in the tax rules concerning company parties

Every year, usually in the weeks before Christmas, some get-together happens in almost every company. Now some tax changes have been announced for company anniversaries, birthdays , and like activities which are paid for by the company.

The employees in those cases receive something akin to a monetary advantage as far as the tax law is concerned. There are yearly upper limits, but for years those have only been sporadically and tentatively been adjusted upward. The current limit is 110 Euros per employee per year.

Some business associations now warn that the new rules might make some companies forego company parties altogether.

The title of the amendment sounds convoluted as usual: „Anpassung der Abgabenverordnung an den Zollkodex der Union“ (Adaption of the tax regulations to the customs code of the European Union) and „Änderung weiterer steuerlicher Vorschriften.“ (Changes of additional tax rules). The latter part especially is highly controversial, as it includes changes in the taxation of “monetary advantage” received by employees during company events. As usual with laws of this kind, the changes reduce the tax deductibility of expenses, which will be felt both by companies and their employees.

With the new rules, a lot of company events will now lead to additional income tax. The plans are to raise the tax-free amount from 110 Euros to 150 Euros, and also raise the tax assessment limits. That in itself sounds positive. However, from now on all costs connected to the even have to be included in the calculation. Currently only the direct cost per individual, like food and drink, are taken into account. Other cost like the decoration or performances or even travel expenses are currently tax-deductible independently and do not count toward the per-employee limit. With that possibility gone, events and parties will not only become much more expensive for the company, but the raise of the tax-free limits for employees looks a lot less generous now. All the more because accompanying persons like spouses now count toward the employee’s limit as well.

In the past, the Bundesfinanzhof decided once that the employee’s spouse should not count toward their monetary advantage. However, that decision was based on the old law and is probably no longer applicable.

Should the new law come into effect, it is likely that many employees will wind up paying more taxes, just because they went to the company’s Christmas party, and maybe took their spouse along.

The reason why the effort to change the law was started in the first place sound almost conjured in comparison. It was the Deutsche Bundesrat which suggested tackling the issue of possible abuse of the current rules for company parties. Namely, some representatives of the Green Party were concerned about companies paying fewer taxes by staging “excessive parties with a hundred GoGogirls”, and asked that such costs should not be tax-deductible. Obviously, hardly any company events are planned and conducted as full-fledged orgies.

Common Christmas parties should still be possible with the new planned rules. The whole issue, however, illuminates the state of affairs concerning the trust between the political system and tax officials on one side, and companies and their employees on the other side.

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