According to the Tax Court (Finanzgericht, FG) of Lower Saxony, the flat-rate tax under § 37b EStG attributable to gifts within the meaning of § 4 (5) No. 1 EStG is not deductible as a business expense. An appeal against the ruling of 16 January 2014 – 10 K 326/13 has been filed with the Federal Fiscal Court (Bundesfinanzhof, BFH). The BFH's decision remains to be seen. Background: Expenses for gifts to business associates (excluding employees) totalling more than EUR 35 may not reduce business expenses. The FG of Lower Saxony has now ruled that the flat-rate tax under § 37b EStG does constitute a business expense under commercial law, but may not reduce income for tax purposes (i.e., a non-deductible business expense within the meaning of § 4 (5) sentence 1 No. 1 EStG). In the case decided, the plaintiff had given complimentary tickets worth EUR 20,000 each to business associates and had taxed these at the flat rate. The plaintiff had deducted the flat-rate tax as a business expense, thereby reducing taxable income. The FG of Lower Saxony did not allow this. In all affected cases, taxpayers should file an appeal and request that proceedings be suspended pending the BFH's decision, should the tax authority deny the business expense deduction. We are happy to handle this for you.
Frequently asked questions
Frequently asked questions
Is the flat-rate tax under § 37b EStG on gifts deductible as a business expense?
According to the FG Niedersachsen (judgment of 16/01/2014, Az. 10 K 326/13), the flat-rate tax under § 37b EStG on gifts to business associates is not deductible as a business expense if the gift itself exceeds the 35 euro threshold. The flat-rate tax shares the tax treatment of the gift and is therefore subject to the deduction prohibition under § 4 Abs. 5 Satz 1 Nr. 1 EStG. While it qualifies as a business expense under commercial law, it may not reduce taxable income.
What is the threshold for gifts to business associates under § 4 Abs. 5 Nr. 1 EStG?
Expenses for gifts to persons who are not employees (e.g., business associates) may only reduce profit if the total acquisition or production costs per recipient and fiscal year do not exceed 35 euros. If this threshold is exceeded, the entire amount is non-deductible for tax purposes.
What is the flat-rate tax under Section 37b EStG on benefits in kind?
Section 37b EStG allows the grantor to tax benefits in kind and gifts to business partners or employees at a flat rate of 30%, plus solidarity surcharge and church tax. This eliminates the need for individual taxation by the recipient. The grantor assumes the tax liability and reports it to the tax office.
How should taxpayers respond if the deduction of the flat-rate tax as a business expense is denied?
If the tax office denies the deduction of the flat-rate tax under § 37b EStG on gifts as a business expense, taxpayers should file an objection against the tax assessment and, referring to the pending appeal proceedings before the BFH, request a stay of proceedings. This keeps the case open until the BFH has issued a final ruling.
What were the consequences of the FG ruling for the case involving complimentary tickets?
The plaintiff had given complimentary tickets worth 20,000 euros each to business associates and applied flat-rate taxation under § 37b EStG. She deducted the flat-rate tax amount as a business expense. The FG Niedersachsen disallowed the deduction, as the gifts significantly exceeded the 35-euro threshold, and therefore the associated flat-rate tax was also subject to the deduction prohibition.