UPDATE - The incompatibility of the "application assessment" with the Agreement on the Free Movement of Persons between the EU and Switzerland - New letter of the Federal Ministry of Finance (BMF)
With the BMF letter dated 5 August 2024, the tax authorities reacted to the ECJ (European Court of Justice) ruling of 30 May 2024 - C-627/22. In accordance with Section 50 para. 2 sentence 2 no. 4 letter b in conjunction with sentence 7 EStG (German Income Tax Act), an application for income tax assessment is only possible if the applicant is a national of a member state of the European Union (EU) or another state to which the Agreement on the European Economic Area (EEA) applies and this person is domiciled or habitually resident in the territory of one of these states.
In its ruling of 30 May 2024 (C-627/22), the ECJ ruled that the right to apply for assessment in accordance with Section 50 para. 2 sentence 2 no. 4 letter b EStG must also be available to employees with limited tax liability who are resident in Switzerland, provided they have German or Swiss citizenship.
From Stefan Sperandio, Johanna Wolter und Monika Lessig
Reform of employment tax classes: Transfer of tax classes III and V to the factor method
With a reform of the tax class, tax class III and V are to be transferred to the so-called factor method (tax class IV with factor) and abolished by 1 January 2030. Marriage splitting is not affected by this.
The factor method is intended to distribute the tax burden more fairly between spouses and registered partners at the time of employment tax deduction. Currently, women are more often in tax class V and therefore face a higher employment tax burden. With the new regulation of the monthly wage tax deduction, the Federal Ministry of Finance is planning the fair and accurate immediate distribution of the wage tax burden for family wages in order to create incentives for gainful employment and increased working hours and to strengthen those working part-time.
Tax classes III and V/splitting method
Employment tax class III is the most favorable of all income tax classes and is based on the consideration of joint tax-free allowances. Wage tax class III can only be chosen in combination with the partner's wage tax class V. Taxpayers in employment tax class III pay less tax and enjoy a higher monthly net income. Employees in employment tax class V pass on their tax-free allowances to their partner and are therefore unable to claim them for their own wage tax purposes and pay significantly more tax, with consequences such as lower wage replacement benefits for short-time working allowance and unemployment.
From Stefan Sperandio, Johanna Wolter und Monika Lessig
Current legislative procedures - Annual Tax Act (JStG) 2024 and Tax Development Act (StEFG): Planned significant changes to wage tax law
Annual Tax Act 2024
On 5 June 2024, the Federal Cabinet adopted the draft Annual Tax Act (JStG) 2024. The legislative process has not yet been finalised. We will look at the main changes to wage tax that are planned in the draft legislation.
Group clause for deferred taxation of non-cash benefits from asset participations (Section 19a (1) sentence 3 EStG, new version)
In future, it will not only be possible to defer taxation of non-cash benefits if employees are given shares in the employer's company, but also if shares in affiliated companies are transferred. This regulation is to come into force retroactively from 1 January 2024.
From Stefan Sperandio, Johanna Wolter and Gurkaran Singh
The new BSG ruling on lump-sum taxation: a slap in the face for employers?
In a recent decision, the Federal Social Court (BSG) defined the deadlines for the lump-sum taxation of benefits at company events and their impact on the exemption from social security contributions. This decision has far-reaching consequences for employers, but raises numerous questions.
The case in detail
This is a dispute regarding a claim for social security contributions in the amount of € 60,043.71 on benefits granted to employees during a company anniversary celebration. The claimant, a GmbH, organised a company anniversary on 5 September 2015, but initially did not include the expenses in its tax return for September 2015. Later, on 31 March 2016, the claimant declared €162,892.96 for 162 employees for lump-sum taxation, which the tax office accepted. Following a tax audit, the DRV and later the defendant demanded contributions and levies based on the flat-rate taxed amount, taking into account statutory health and long-term care insurance, statutory pension insurance, unemployment insurance and the insolvency levy.
The Social Court (SG) overturned the decisions and the Regional Social Court (LSG) dismissed the defendant's appeal. The LSG argued that wages from company events that exceed €110 per employee and are taxed at a flat rate should not be considered income subject to social security contributions. The LSG emphasised that the flat-rate taxation had actually taken place and that the pension insurance institutions were bound by the decision of the tax authorities. The LSG rejected the view that only lump-sum taxation claimed up to 28 February 2016 could be relevant for social security purposes and stated that the law did not support this view.
Ultimately, the Federal Social Court (BSG) ruled in favour of the defendant and overturned the decisions of the LSG and SG. The BSG found that the claimant's late lump-sum taxation did not exempt the benefits from social security contributions. The court emphasised the need for timely and accurate contribution determination and payment within the relevant accounting period, which was in line with the defendant's interpretation of the regulations.
From Natalia Römer-Koshcheeva
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