Farewell party with presentation of the successor - Company event or a private party for the bank’s executive board?
Contrary to the administrative opinion, the Lower Saxony tax court (Finanzgericht, FG) is of the view that a farewell party hosted by the employer for one of the executive employees can be regarded as a company event even if the exemption threshold of €110 is exceeded.
The fiscal administration generally allocates all the costs for an event to mark a departure or introduce a successor or a change of office to the taxable remuneration if the costs per participant exceed the exemption threshold of €110. In a recent case, the Lower Saxony FG issued a ruling that deviated from this hitherto prevailing view of the administration.
In its decision of 14.5.2024 (case reference: 8 K 66/22), the FG ruled on a bank that had hosted a big party with around 300 guests where it had bid farewell to its hitherto CEO, who was retiring, while at the same time introducing his successor. The title of the event was already worded accordingly; the invitations on behalf of the bank were sent to people from different areas of public life, including politics, administration and business as well as to selected former and current bank employees. In addition, eight relatives of the outgoing CEO were invited. A payroll tax auditor treated the expenses overall as remuneration and held the bank liable for the payroll tax incurred. The reasons for this were that the total costs per participant were more than €110 and not all the bank’s employees had been invited.
Following an unsuccessful appeal against this decision, the case before the FG has now been successful. The FG regarded solely the share of the costs for the outgoing CEO and the eight members of his family as remuneration. However, the local tax office has lodged an appeal with the Federal Fiscal Court against this decision (case reference: VI R 18/24).
The FG did not view the event as a private function for the outgoing CEO, but rather as a company event that predominantly served commercial interests since the bank appeared as the organiser, had sent out the invitations in its name and had drawn up a guest list almost entirely from a business point of view. Moreover, the party took place on the bank’s premises. The judges at the FG saw an irreconcilable conflict and objectively unjustified unequal treatment in respect of birthday parties for employees. In the case of such events only the costs that are incurred for the celebrating employee and their guests are likewise classified as remuneration.
