Flat-rate payroll tax for benefits provided by employers in addition to the remuneration due in any case to employees

Issue – Subsidies paid by employers for travel costs and internet usage

In the case that the BFH ruled on, the claimant had concluded new pay agreements with several employees. In these agreements, the previous gross salary had been reduced. At the same time, a subsidy had been agreed for the journeys between home and the workplace as well as for internet usage. In this context, it was questionable whether an additional benefit that allows tax to be charged at a flat rate could indeed be assumed, or whether such a tactic constituted a change in the remuneration system that was harmful for tax purposes.

Previously the voluntary aspect had been crucial

According to the legal rulings hitherto by the BFH, employer subsidies are granted “in addition to the remuneration due in any case to employees” when such subsidies are added to wage and salary payments that are due under employment law. Consequently, employer subsidies are only paid “in addition to the remuneration due in any case to employees” if the employer voluntarily pays for them and the employees are thus not entitled to them under employment law. The BFH no longer adheres to these case law principles.

Change in case law

The BFH assumes that amounts that are paid in addition to the remuneration due in any case to employees constitute wages or salaries if the employer pays out these amounts for a specific use and/or purpose. As a result, it no longer matters whether or not there is an entitlement to these payments under employment law. Notably, the wording of the law does not necessarily have to be interpreted as meaning that wages or salaries paid in addition to the remuneration due in any case to employees may not be owed. This is because voluntary payments and additional payments are not mutually exclusive.

In the cases in question, there was a particular examination of the issue of the point in time that relates to the feature “in addition to the remuneration due in any case to employees”. The BFH decided that the requirement that the payment should be additional should relate to the date when the wage or salary is paid. Therefore, a change in the remuneration system that has been agreed in an employment contract is not harmful from a preferential tax rate perspective. Consequently, in an agreed salary conversion, employers and employees are able to reduce the “remuneration due in any case to employees” for future wage or salary payment periods and compensate for the reduction, in a tax privileged way, with an additional payment for a specific use.

Finally, the BFH established (in two parallel rulings from 1.8.2019 with the case references: VI R 21/17 and VI 40/17 where the decisions were identical in terms of their contents) that salary conversion is not arbitrary. It is rather on a par with contractual freedom and a legitimate interest in “optimising the employment contract” in relation to the tax and social security regulations.

Please note: For the moment, the new BFH ruling should be viewed positively because the condition of being “in addition to the remuneration due in any case to employees” has been interpreted in a more practice-oriented way. Nevertheless, it remains unclear how the fiscal authority will respond to these rulings. Therefore, remuneration optimisation models (“more net pay”) can be applied with legal certainty to this extent until further notice.