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Assumption of tax consulting costs by the employer in the case of a net pay agreement

The German subsidiary of a global group had negotiated net pay agreements with the employees who it had posted to Germany. In the above-mentioned case, the pay agreements provided for the preparation of tax returns for the employees by a tax consultancy commissioned by the employer. The costs incurred for the consultancy were settled by the employer. The employees, in turn, assigned their tax refund claims to the group.

The Federal Fiscal Court (Bundesfinanzhof, BFH), in its ruling from 9.5.2019 (case reference: VI R 28/17) has now decided that the assumption of tax consulting costs by an employer does not result in employee remuneration. Employers that assume tax consulting costs are not compensating their employees but acting primarily in their own business interests. Through optimal tax advice and by assigning tax refund claims employers are able to reduce their payroll expenses. The economic benefit from taking this approach thus lies with the employer.

Please note: The ruling can also be applied to domestic (German) issues. This is because, in the view of the BFH, it is not of general relevance that the employee in the case in question was posted to Germany from abroad.

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