German Tax Updates in November 2023
1. Improvement in company car taxation of electric vehicles planned from 2024.
2. BFH decision on non-cash benefits from company car hire.
3. Loss from the sale of significant shares of GmbH.
4. BFH ruled on the legal situation related to GmbH insolvency.
5. Treatment under income tax related to subsequent payment of social security contributions by means of a summation notice.
- Improvement in company car taxation of electric vehicles planned from 2024.
In addition to the legal changes already presented as part of the Growth Opportunities Act, the German government is planning further improvements to the taxation of company cars.
According to the government draft, this involves the following:
In the case of private use of a company car that is purely an electric vehicle, only a quarter of the gross list price is used to calculate the non-cash benefit.
If the Logbook rule (A method in which the company car users record the mileage of the car driven for private and business use respectively, and non-cash benefit is calculated by the divided amount based on the mileage of private use portion) is applied, only a quarter of the acquisition costs are recognized under current law. However, this rule is applicable only if the gross list price of the vehicle does not exceed € 60,000.
The German government wants to increase demand, promote sustainable mobility, and reflect the increased purchase costs of such vehicles in a practical manner.
For this reason, the existing maximum amount for the reduced taxation of the non-cash benefits when the company car is provided for the first time after 31 December 2023 is to be increased from €60,000 to €80,000.
- BFH decision on non-cash benefits from company car hire.
Depreciation for private garage may not be offset.
If employers provide their employees with a company car for private use, this non-cash benefit must be taxed by using either the 1% method or the logbook method as wages. However, if the employee pays a fee to the employer for the use of this vehicle outside of work (e.g., monthly flat rate, mileage allowance, assumption of leasing installments), this personal contribution reduces the taxable monetary benefit, since the employee is not being enriched in this respect. The employee’s assumption of individual vehicle costs (e.g., for fuel) may also be offset in this case.
The Federal Fiscal Court or Bundesfinanzhof (BFH) has now decided that the costs of an employee’s private garage may not be considered to reduce the benefits if the employee had no legal obligation to park the vehicle there.
A lawsuit was filed by an employee with a company car who wanted to claim the depreciation of his private garage as business expenses. The employer only stipulated that company vehicles had to be treated with care and there was no obligation to park them in the garage. The BFH explained that usage fees may only be deducted to reduce the benefits if they must be paid for the provision and commissioning of the company car. This did not apply to the garage depreciation. There was no legal obligation on the part of the employee to park the vehicle in a specific garage. There was also no assumption of individual usage-dependent costs, as the costs for the garage were not dependent on the use of the company car.
- Loss from the sale of significant shares of GmbH.
It is not uncommon for a significant GmbH share to be used to deliberately cause a loss.
Since 31 July 2019, this is no longer so easy. For the period prior to this, a judgement by the Federal Fiscal Court or Bundesfinanzhof (BFH) stipulates that all income from the entire shareholding and not an individual share must be considered for the necessary intention to make a profit.
Background
If a share in a corporation in which you have held at least 1 % within the last five years is sold, this leads to commercial income (Section 17 (1) of the German Income Tax Act (EStG)). However, in the case of loss-making disposals in particular, the question arises as to whether the intention to realize a profit is generally required or not.
Facts of the case
The single shareholder of a GmbH with a share capital of €25,000 divided into 25,000 shares of €1 each and decided to increase its capital by €1,000 shortly after its formation (November 2015) in December 2015. The 25,001 company shares with a nominal value of €1,000 were created for this purpose. In addition to this nominal amount, a premium of €500,000 was paid into the GmbH as capital reserves.
At the end of 2015, the single shareholder sold 300 shares worth €1 together with the new share to her husband for a purchase price of €26,300, which was in principle reasonable. In her income tax return for 2015, she claimed a capital loss of €475,000 (purchase price of €26,300 less acquisition costs of €1,300 and a premium of €500,000).
- BFH ruled on the legal situation related to GmbH insolvency.
The Federal Fiscal Court or Bundesfinanzhof (BFH) ruled that shareholder of a GmbH can claim guarantee loss for tax purposes. A GmbH shareholder left a guarantee in a certain crisis and was able to claim the loss from the worthlessness of his recourse claims as negative investment income. Because the intention to generate income was positive in an overall assessment of all income from the investment, the BFH ruled on the legal situation until 2019.
- Treatment under income tax related to subsequent payment of social security contributions by means of a summation notice.
If the social security authorities require the employer to pay social security contributions in arrears due to recording errors via a summary assessment, this does not result in the accrual of wages for individual employees. The Federal Fiscal Court or Bundesfinanzhof (BFH) has thus confirmed a tax court judgement from 2020.
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