- Partial Income Method Can Enable Deduction of Income-Related Expenses for Capital Income
- Surprise Visit from the Tax Office: What to Bear in Mind During a Cash Register Inspection
- E-Mobility: New Tax Benefits to Make Company Provided Electric Vehicles More Attractive
1. Partial Income Method Can Enable Deduction of Income-Related Expenses for Capital Income
Capital gains are generally subject to a flat-rate withholding tax without deduction of income-related expenses. Shareholders with a material interest can opt for the partial income method for their dividends, in which case costs are deductible. According to the Federal Fiscal Court, an initially admissible application does not lose its five-year effect if the requirements are no longer met later.
Background: Shareholders of a GmbH may apply for the partial income method if they own, directly or indirectly, at least 25% of the shares in the year of application or if they own at least 1% of the shares and are significantly involved in the GmbH professionally such as a Managing Director. (Section 32d (2) no. 3 of the Income Tax Act). By application of this provision, only the remaining amount of the dividend, after deducting income-related expenses from the amount of income corresponding to 60% of the dividend, is taxed at the income tax rate of the individual concerned (without savings deduction).
Please Note: This option is valid for five years, even if the application requirements from the first year no longer apply in the following four years. The Federal Fiscal Court decided as in the following case:
Facts of the Case: The GmbH shareholder, who held one-third of the share capital, had financed the acquisition costs externally. They sold their shareholding in 2010, but the proceeds from the sale were not sufficient to repay the debt in full. Interest payment on the debt continued after the sale. In their 2010 income tax return, they declared a capital loss and applied for the partial income method for their income from the GmbH and for the deduction of debt interest in the dispute years from 2011 to 2014. During a subsequent tax audit, the tax office did not consider the requirements for the partial income method to be met in the years in dispute because the investment had been sold. The appeals by the tax office were unsuccessful. However, the tax office appealed to the Federal Fiscal Court. This court has now confirmed the validity of the partial income procedure and thereby allowed the deduction of the subsequent debt interest.
The Federal Fiscal Court clarified three things in particular. First, it held that the application requirements need only be met in the first year of application. Second, it is not necessary to prove application of the requirement in the subsequent four years. Finally, it is sufficient that the applicant has a concrete possibility of generating income in the year of application, hence it is not required that the applicant actually earned a specific income from the investment.
2. Surprise Visit from the Tax Office: What to Bear in Mind During a Cash Register Inspection
Tax offices may carry out so-called “cash register inspections” of businesses with a high volume of cash transactions. In this context, the data of the cash register is checked unannounced to ensure that it meets the legal formal requirements, and that cash receipts and expenditures are properly recorded.
As fraudsters also know about the cash register inspections being conducted, it is important to know that tax auditors will never request cash payments during the cash register inspection. If the tax auditor does not present proper identification when they show up for a cash register inspection, the companies to be audited should ask to see the official identification before the inspection begins. In addition to electronic and computerized cash register systems, cash register inspections may also include app systems, scales with cash register functions, taxi meters, odometers, gaming machines and point-of-sale cash registers. The tax auditors can directly review the stored data and programming of the cash register systems or take the data with them on a “data carrier” for inspection at a later date.
Please Note: If major irregularities are discovered during a cash register inspection, the tax auditors can easily switch this inspection to a regular tax audit. In that case, the entire company is subject to be audited directly without prior notice.
3. E-Mobility: New Tax Benefits to Make Company Provided Electric Vehicles More Attractive
At the end of 2023, the German government prematurely abolished the environmental subsidies for the purchase of eligible electric vehicles (EVs). The subsidies were still to be granted in 2024 under certain conditions.
The Tax Reform Act (which has yet to be passed by the Federal Council) is now intended to strengthen e-Mobility once again by providing tax relief. Details of the currently planned amendments are as follows:
New Price Limit: Anyone who is also allowed to use a company car for personal use will be taxed on this use as a non-cash benefit. The simplest way to do this is to use a flat rate benefit determination method, whereby 1.0% of the vehicle’s gross list price is taxed each month (the so called “1% rule”). For a company provided EV without any CO2 emissions, however, only a quarter of this amount will be due until the end of 2030, i.e. effectively 0.25% of the gross list price of the EV. Initially, this regulation only applied to EVs with a gross list price of up to €40,000, but the limit was later increased to €60,000 and finally to €70,000 from January 2024. The legislator is now considering to raise the maximum limit to €95,000, retroactively starting from July 1, 2024, through the Tax Reform Act.
New Special Depreciation: In addition, the Tax Reform Act is intended to allow companies to take advantage of a special depreciation for newly purchased company provided EVs, retroactively starting from July 1, 2024. These EVs can then be depreciated over a six-year period years and at a substantial rate: 40% of the purchase price in the first year, 24% in the second year, 14% in the third year, 9% in the fourth year, 7% in the fifth year, and 6% in the sixth year.
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