Up to now, the fiscal authority has not recognised, for payroll tax purposes, agreements on time accounts for employees who have also been appointed as an organ (e.g. managing directors of a GmbH (private limited company), the executive board of an AG (a joint stock company)). After a landmark ruling of the Federal Fiscal Court (Bundesfinanzhof, BFH), the Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) made revisions to its guidelines in a circular from 8.8.2019.
The previous view of the fiscal authority
Working time accounts constitute a model for the flexibilisation of working hours. Employers and employees agree that the remuneration of the employee concerned will not be paid out immediately and in full but, instead, the amount will be recorded in a working time account in order to pay it out to him or her in the context of a future leave of absence. In the view expressed hitherto by the fiscal authority (cf. BMF circular from 17.6.2009), crediting the working time account does not yet result in an inflow of remuneration. It is only when the credited amount is paid out during a leave of absence – therefore, the point in time when the employee acquires economic authority to dispose of his/her salary – that there is an inflow and the corresponding payroll taxation takes place.
However, up to now, organs of corporations were explicitly excluded from this regulation because it was the opinion of the fiscal authority that agreements on the creation of working time accounts were not compatible with the duties of an organ of a corporation. Consequently, in the case of all managing directors and executive board members, crediting remuneration to a working time account resulted in an immediate inflow of remuneration.
A new BFH ruling
The BFH, in its ruling from 22.2.2018, distanced itself from this restrictive interpretation of the fiscal authority, at least with respect to working time accounts for external organs, i.e. those who are not concurrently shareholders. In the opinion of the Munich judges, there is no legal basis why for the inflow of remuneration other requirements should apply to external organs than do for other employees. This is because even if you follow the view of the fiscal authority such that agreements for working time accounts are not compatible with the duties of an organ of a corporation, nevertheless, the inflow and obtaining economic authority to dispose will be determined by actual circumstances. Yet, the external organ will only acquire the economic authority to dispose once the funds have been paid out.
BMF circular from 8.8.2019
Against the background of the above-mentioned ruling, the BMF adjusted its guidelines with respect to working time accounts for organs of corporations, in its circular from 8.8.2019, as follows:
(1) Organs with no shareholders – Agreements on the creation of working time accounts also have to be recognised in the case of organs of a corporation.
(2) Minority shareholder organs – A review should be carried out on the basis of general principles in order to determine whether or not a hidden profit distribution has been made. If the model has been configured on the basis of an arm’s length arrangement then the working time accounts have to be recognised for payroll tax purposes.
(3) Majority shareholder organs – There will always be a hidden profit distribution. Consequently, agreements on the creation of working time accounts may not be recognised for payroll tax purposes.