Is the tax office permitted to make additional estimates for so-called "non-food items" beyond the official values for withdrawals in kind in the food retail sector? The Finanzgericht (Tax Court) Münster addressed this question.
FG Münster Case: Sole Trader, Additional Assessment of Withdrawals for "Non-Food Items"
The plaintiff is the managing director of two food retail branches. Profits are determined in accordance with § 4 Abs. 1 in conjunction with § 5 EStG by way of comparison of business assets. The product range of the two branches comprises a wide variety of items. In addition to classic groceries and beverages, this includes stimulants (tobacco products) as well as so-called "non-food items" (e.g., detergents and cleaning products, hygiene and cosmetic articles, etc.). In the disputed years (2015 – 2017), the sole trader withdrew items from the entire product range. Since he kept no separate records of the goods withdrawn, he instead applied the flat rates for withdrawals in kind from the applicable BMF letter. During a tax audit, the tax office increased the flat rates for withdrawals in kind, taking the view that the applied amounts only cover the categories of food and beverages. For this reason, the tax office increased the determined profit by flat rates for non-food items (so-called "non-food items") in the amount of EUR 140 net per month plus value-added tax. The plaintiff initially filed objections against the correction with the competent tax office. The tax office, however, shared the view of the audit and rejected the objection.
FG Münster: Action Successful
The FG Münster ruled in favor of the taxpayer (judgment of 29 April 2022, 10 K 1297/20 G,U,F). The FG Münster based its decision on the following reasoning:
- The plaintiff kept no records of the goods withdrawn. Consequently, the withdrawals are to be estimated pursuant to § 162 Abs. 2 S. 2 AO.
- The official values for withdrawals in kind are derived from empirical values and are intended only as guidance.
- The tax office's estimate is unlawful as to amount. Increasing profit by flat rates for non-food items is impermissible. Exercising its own power of estimation, the court takes the view that only the flat rate for the trade category of food and stimulants (retail) is sufficient.
- Although the product range of a food retailer should consist predominantly of food and beverages, it is a matter of general experience that so-called "non-food items" are also sold.
The FG Münster granted leave to appeal against its decision, so that proceedings are now pending before the BFH. A decision is still outstanding.
Frequently asked questions
Frequently asked questions
Do the flat-rate amounts for in-kind withdrawals also cover non-food items in food retail?
According to the ruling of the Münster Tax Court (judgment of 29 April 2022, 10 K 1297/20), the flat rate for the food and beverage retail sector is sufficient and also covers withdrawals of non-food items such as cleaning supplies, hygiene products, and cosmetics. An additional estimate by the tax office for non-food items is not permitted. The court reasoned that, based on general experience, food retailers typically also carry such items in their product range.
What is the significance of the official flat-rate amounts for withdrawals of goods?
The flat-rate amounts published annually in a BMF circular are based on empirical data and serve as guidance for estimating withdrawals of goods pursuant to § 162 Abs. 2 Satz 2 AO. They apply when the taxpayer does not keep separate records of goods withdrawn. While they eliminate the need for itemized records, they are not a rigid upper limit.
What are the tax consequences if a retailer fails to keep records of withdrawals of goods?
If the business owner does not maintain individual records of withdrawals in kind, the tax office is entitled to make an estimate pursuant to § 162 Abs. 2 Satz 2 AO. In practice, the official flat-rate amounts for withdrawals in kind applicable to the respective trade sector are regularly used. These values may be applied by the taxpayer and are generally accepted by the tax office.
Is the FG Münster ruling on non-food withdrawals final and binding?
No, the FG Münster allowed an appeal and the case is now pending before the BFH. A final decision by the highest court is still outstanding. Affected taxpayers should therefore keep comparable assessments open and, where appropriate, refer to the pending BFH proceedings.
Is the tax office allowed to increase the flat-rate amounts for goods withdrawals on a lump-sum basis?
According to the Fiscal Court of Münster, a blanket increase of the official rates by additional amounts for non-food items is unlawful. Within its estimation authority, the tax office must provide a comprehensible explanation as to why the official flat rates are insufficient in the specific case. The mere fact that a food retailer also carries non-food items does not justify an additional estimate.