The Federal Fiscal Court (Bundesfinanzhof, BFH), in its ruling from 7.7.2020 (case reference: VI R 4/19), took a closer look at this flat-rate taxation. In the case in question, the employer had used flat-rate taxation years ago to pay tax on benefits arising in connection with a business function. The local tax office had additionally included the costs for the external setting for the event in the assessment base for the payroll tax (e.g., rent for the hall, technical equipment, portable toilet cabins). After the employer’s challenge before the tax court was dismissed, the BFH ruled in favour of the local tax office because, according to the wording of the German Income Tax Act, the taxation has to be applied to all “the taxpayer’s expenses, including VAT”. Therefore, this includes the costs for the external setting of the event. In the opinion of the BFH judges, with respect to the inclusion of costs, it does not matter whether the employer’s expenditure produces a specific benefit for the employee.
Please note: The BFH merely excluded the costs for advertising materials from the assessment base for the flat-rate tax, since the purpose of such expenditure was not the event itself but, instead, in-house advertising or promoting the public image for the employer.