Company event and limited group of people
Company event and limited group of people
Benefits in kind provided by the employer in connection with a company event generally constitute taxable wages. The situation is different if participation in the event is open to all employees equally: in this case, an allowance of EUR 110 per company event and participating employee applies. Benefits below this amount do not constitute wages and do not trigger wage tax or social security contributions. In addition, Section 40 para. 2 sentence 1 no. 2 of the German Income Tax Act (EStG) provides the option of taxing wages above the tax-free amount at a flat tax rate of 25 %. The Federal Fiscal Court decided in its ruling of 27 March 2024 (case no. VI R 5/22) whether a company event also exists if it is not open to all company employees equally.
In the case decided, participation in the organised Christmas parties was only intended for members of the Executive Board and senior management of the company. In dispute was the employer's lump-sum taxation of the wages paid for this. From the point of view of the tax authorities, all employees of the company or organisational unit should have been invited to the events.
The Federal Fiscal Court based its considerations on the regulation on wages in Section 19 EStG, which has been in force since 2015 - and therefore also in the year in dispute. According to the legal definition introduced at the time, a company event is an ‘event at company level with a social character’. The previous case law, according to which a company event was only to be understood as an event that was generally open to all members of the company, no longer applies. This definition also applies to the lump-sum standard of Section 40 EStG. In accordance with the existing system, no separate definition is required for this within the framework of the same law.
The fact that an event is open to all members of the company is therefore not decisive for the existence of a company event, but merely a prerequisite for considering the tax-free allowance of EUR 110. The Federal Fiscal Court therefore confirmed the possibility of lump-sum taxation, even if only a limited group of people are invited to the company event; however, the tax-free allowance does not apply in these cases.
In the case decided, participation in the organised Christmas parties was only intended for members of the Executive Board and senior management of the company. In dispute was the employer's lump-sum taxation of the wages paid for this. From the point of view of the tax authorities, all employees of the company or organisational unit should have been invited to the events.
The Federal Fiscal Court based its considerations on the regulation on wages in Section 19 EStG, which has been in force since 2015 - and therefore also in the year in dispute. According to the legal definition introduced at the time, a company event is an ‘event at company level with a social character’. The previous case law, according to which a company event was only to be understood as an event that was generally open to all members of the company, no longer applies. This definition also applies to the lump-sum standard of Section 40 EStG. In accordance with the existing system, no separate definition is required for this within the framework of the same law.
The fact that an event is open to all members of the company is therefore not decisive for the existence of a company event, but merely a prerequisite for considering the tax-free allowance of EUR 110. The Federal Fiscal Court therefore confirmed the possibility of lump-sum taxation, even if only a limited group of people are invited to the company event; however, the tax-free allowance does not apply in these cases.
Notice:
The option of flat-rate taxation in accordance with Section 40 EStG also has the advantage that the lump-sum taxed salary remains exempt from social security contributions in accordance with the relevant regulation in Section 1 para. 1 sentence 2 SvEV. However, according to the current decision of the Federal Social Court of 23 April 2024 (case no. B 12 BA 3/22), this requires that the flat-rate taxation takes place in time: in principle ‘with the pay slip for the respective payroll period’, but at the latest by the date on which the wage tax statement for the previous year must be submitted, i.e. 28 February of the following year.
The option of flat-rate taxation in accordance with Section 40 EStG also has the advantage that the lump-sum taxed salary remains exempt from social security contributions in accordance with the relevant regulation in Section 1 para. 1 sentence 2 SvEV. However, according to the current decision of the Federal Social Court of 23 April 2024 (case no. B 12 BA 3/22), this requires that the flat-rate taxation takes place in time: in principle ‘with the pay slip for the respective payroll period’, but at the latest by the date on which the wage tax statement for the previous year must be submitted, i.e. 28 February of the following year.