New Ruling of the Federal Fiscal Court on benefits in kind
The flat-rate taxation of benefits in kind is controversial. In its ruling of August 9, 2023 (court docket number: VI R 10/21), the Sixth Senate of the Federal Fiscal Court came to the conclusion that non-cash benefits from a credit institution to its private customers for general customer care are not taxable, as no type of income is addressed. The right to waive taxation depends on the individual case, but each taxpayer will most likely have to sue the tax administration individually over this. Costs and benefits must be weighed up if a deviation from the view of the tax authorities described below is to be made:
Gifts under tax law
According to § 4 Section 5 sentence 1 German Income Tax Act (EStG), business expenses for gifts may not reduce profits if they exceed a (personal annual) limit of EUR 35 (net or gross) per gift recipient.
Whether the limit is to be understood as a net or gross amount depends on the company's right to deduct input VAT: if the taxpayer is entitled to deduct input VAT, it is a net limit plus statutory VAT. But be careful: VAT differs depending on what is gifted. In the case of food, this can be 7% or - as in most cases - 19%. This results in a gross limit of between 37.45 EUR up to 41.65 EUR . The input VAT may be refunded by the tax office as long as this threshold is not exceeded.
For medical practitioners, who generally cannot claim input VAT deduction, the limit is EUR 35 per recipient and fiscal year.
In order to monitor compliance with the threshold of 35 EUR net plus VAT for each gift recipient, it is advisable to keep a list of gift recipients. Up to this amount, treatment as a business expense is possible. If the amount is exceeded, a deduction of business expenses is no longer possible and input VAT will not be refunded by the tax authority.
Flat-rate tax on gifts
For recipients who are resident of or have habitual residency in Germany, there is a flat-rate income tax on gifts to third parties (§ 37b EStG). In Hesse, for example, this amounts to 33.75% including flat-rate church tax (7%). With the maximum permissible amount of 35.00 EUR net, the flat-rate income tax including solidarity surcharge and flat-rate church tax on the individual gift is up to 11.81 EUR. This additional tax is deductible as a business expense if the threshold (35.00 EUR) is not exceeded (note that 35.01 EUR net is already harmful!).
Consequences of exceeding the 35 Euro threshold
If the limit is exceeded by just one cent, the expenses for the gift can no longer be claimed as business expenses according to the wording of the law. Input tax deduction is also ruled out. The legal consequences can be summarized as follows:
- The gift is not deductible as a business expense;
- The input tax is not refunded;
- Any flat-rate taxes payable must be treated as non-deductible.
Wage tax return December 2023
To ensure taxation, we require a completed list of gift recipients by mid-December 2023.
A template is attached here for download: Gift recipient list 2023.
This should be completed and returned by e-mail to firstname.lastname@example.org.
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