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Principle:
According to the Finanzgericht (Tax Court) Münster, case no. I K 3320/18 L of 03 December 2019, a payment made by an employer to employees for attaching a licence plate holder bearing advertising is now subject to wage tax.
Background:
The claimant (employer) entered into lease agreements with a number of employees regarding advertising space on their private vehicles. Under these agreements, the employees concerned undertook to attach licence plate holders displaying the claimant's company advertising. In return, they received a payment of EUR 255 per year.
The tax office reclassified these payments as wages and held the employer liable for the additional wage tax. The employer challenged this decision, arguing that the lease was concluded in its own business interest and that the payment therefore did not constitute wages.
Decision of the Tax Court:
Employee status was the predominant factor
The Tax Court Münster dismissed the action, holding that the employee status was the predominant factor here. It thereby agreed with the tax office's view that the employer's payments for attaching the licence plate holders bearing company advertising constituted wages.
According to the court, the triggering reason for the payments was the contracting parties' status as employees and thus, in the broadest sense, their working activity. The operational objective of conducting advertising was not clearly the predominant factor.
Only if the contractual arrangements had specifically ensured the promotion of the advertising effect would the payments not have qualified as wages. In the present case, however, the contracts concluded between employer and employees contained no provisions ensuring that the respective vehicle would be used in an advertising-effective manner. Furthermore, no rules had been set out regarding whether additional advertising for other companies could be attached to the vehicle, or whether exclusivity was owed to the employer.
Since the Tax Court allowed an appeal to the BFH, the decision of the higher instance remains to be seen. It therefore remains exciting. The decision is quite surprising in this case and shows once again how important specific contractual arrangements between employer and employee are here as well!
Frequently asked questions
Frequently asked questions
Is payment for company advertising on an employee's private vehicle considered taxable wages?
According to the ruling of the FG Münster dated 03.12.2019 (Az. 1 K 3320/18 L), payments made by an employer for affixing license plate frames with company advertising to an employee's private vehicle constitute taxable wages subject to wage tax. The court held that the triggering factor for the payment is the employment relationship and thus the work activity, not an independent advertising interest.
When does advertising on an employee's vehicle exceptionally not constitute wages?
Wages are not deemed to arise only if the operational business purpose of the advertising is clearly the primary objective. This requires that the contractual arrangement ensures the promotion of the advertising effect, for example through specific requirements regarding the promotional use of the vehicle as well as provisions on exclusivity or the permissibility of additional third-party advertising.
Which contractual provisions were missing in the case before the Finanzgericht Münster?
The rental agreements contained no requirements ensuring that the vehicle would be used effectively for advertising purposes. They also lacked rules on whether additional advertising for other companies could be displayed or whether exclusivity was owed to the employer. As a result, the advertising effect was overshadowed by the employee relationship.
What consequences does classification as wages have for the employer?
If the payment for vehicle advertising qualifies as wages, wage tax must be withheld and remitted. If the employer fails to do so, the tax office may hold the employer liable under wage tax liability rules, as occurred in the case at issue.
Is the ruling of the Münster Tax Court on vehicle advertising already final?
No, the Münster Tax Court has allowed an appeal to the Federal Fiscal Court (BFH). Until a supreme court decision is issued, employers should place particular emphasis on a clear, advertising-oriented contractual structure for comparable advertising agreements with employees in order to minimise the risk of reclassification as wages.