By BMF letter dated 9 April 2020 – BStBl I p. 503, the German government has for the first time laid the foundation stone for employers to be able to pay out up to 1,500 euros in aid to their employees to mitigate the consequences of the Corona crisis tax- and social security-free. With the introduction of § 3 No. 11a EStG, this possibility has now even been put into a legal framework. Many employers already make use of this regulation and reimburse their employees for expenses they have incurred, for example, due to their work in the home office or closed daycare centers and schools. Nevertheless, there are still uncertainties in the application of these tax-free benefits – for example, whether it is also possible to make payments to posted employees. Let us therefore take a closer look at the regulation and its background.
The newly introduced § 3 No. 11a EStG stipulates that employers may, in addition to the wages owed in any case, pay out tax-free allowances and benefits in kind up to an amount of EUR 1,500 to their employees in the period from March 1 to December 31, 2020 due to the Corona crisis. This is basically intended to provide tax incentives for personnel (keyword: system-relevant professions) who are particularly in demand during the crisis. However, tax law does not distinguish between occupational groups or sectors, so this tax benefit is open to all special payments in all sectors, provided the relevant conditions are met.
In order to benefit from this, corresponding benefits must be paid in addition to the wages owed. This is always fulfilled if they are not credited against the entitlement to wages, if the entitlement to wages is not reduced in favor of the benefit, if they are not granted instead of an already agreed future increase in wages, and if the benefit is not increased when the benefit is discontinued. Furthermore, only payments made as a result of the Corona pandemic are eligible.
So far, so good. If both employer and employee are in a “normal” employment relationship in Germany, the conditions mentioned should be easy to check and the benefits provided should be assessed accordingly. But what happens if companies have sent their employees abroad during the Corona crisis or even act as a host company for foreign employees in Germany? This is where things become more complicated.
Basically two questions arise here: Is the German company an “employer” in the sense of the law and are the employees concerned consequently “employees”? And do the posted employees fall within the scope of the law at all?
In the opinion of the tax authorities, the new regulation of § 3 No. 11a EStG is based on the wage tax employer concept. Especially against the background that the employer is obliged to withhold wage tax in accordance with § 38 (1) sentence 2 EStG, and the new regulation of § 3 no. 11a EStG requires a record of the corona-related special payments in the wage account, this view makes perfect sense.
Even if neither the Income Tax Act nor the Wage Tax Implementing Regulation defines the term “employer” in more detail, there are nevertheless features from both case law and other wage tax regulations that can be used to define the term. For example, a company is an employer for income tax purposes if:
Likewise as crucial for the characteristic as wage taxable employer it is often regarded that an enterprise must be able to employ and dismiss employees from own decision measures.
In the case of foreign assignments, the assessment of who is to be regarded as the wage tax employer for the assigned employee during his or her stay abroad usually focuses on the integration of the employee into the company. Thus, in the case of a secondment, the economic employer is usually to be equated with the wage tax employer according to the double tax treaty.
In general, it can be stated that in the case of foreign assignments – in accordance with the regulations of the double tax treaties – it cannot be assumed that the employees will be integrated into the host company for stays of up to three months. In this respect, the home company remains the employer for wage tax purposes. This means the following for the payment of corona-related benefits to employees:
If an employee is assigned for a maximum of three months, he or she can easily be granted payments in accordance with § 3 No. 11a EStG, as the German company will undoubtedly remain a wage tax employer. Thus, the wage tax deduction obligations pursuant to § 38 (1) sentence 2 EStG continue to be incumbent on him. It is important to note that records must also be kept in the employee’s payroll account for tax-free corona-related payments.
Accordingly, no tax-free allowances in accordance with § 3 No. 11a EStG can be paid for employees for whom the German company acts as the absorbing company for a maximum period of three months, as the German company will not become a wage tax (economic) employer for lack of integration.
If employees are assigned for a period of more than three months or are taken on by a German company, a close examination is required. The overall picture of the circumstances is decisive here. Ulrike Hasbargen, partner at EY, once described the requirements very nicely in an article in the Handelsblatt: “According to the opinion of the BFH, an economic employment relationship is to be judged according to the work organization within which the employee is active, which time and activity specifications the employee actually follows, so that the employee can be considered to be integrated into the employer’s organization as bound by instructions, who benefits from the economic success of the employee’s activity or who bears the risk of the employee’s activity. Finally, from the German point of view it is of particular importance who actually bears the cost of the salary according to the general regulations on the allocation of profits between associated companies (so-called transfer pricing principles) or who should have borne it according to the relevant arm’s length principles.”
In general, longer-term assignments (more than three months) are usually structured in such a way that the host company becomes the economic employer (in accordance with the double tax treaty), because it bears the costs of the assignment and is authorized to issue instructions to the employee with regard to his activities and working and vacation times. Accordingly, the right of taxation is usually transferred to the host country, even if the employee remains resident in the home country (e.g. because the family remains in the home country). For the possibility of the payment of tax-free corona assistance according to § 3 No. 11a EStG this means the following:
If the foreign company becomes the economic (and thus wage tax) employer for an employee posted from Germany to a foreign country, there is no possibility to grant tax-free corona-related benefits.
The situation is different if postings are arranged in such a way that the employee in question is not integrated into the foreign company. This may be the case, for example, if the employee only performs supervisory or instructional activities on behalf of his posting employer, e.g. for the introduction of new systems or the commissioning of new facilities at the subsidiary abroad.
If the German host company becomes the economic (and thus wage tax) employer of an employee sent to Germany from abroad, tax-free corona-related special payments can also be granted to foreign employees. Here, too, the situation may be different if only supervisory or instructional activities are performed.
Whether employers have the option of also granting a tax-free, corona-related special payment of up to 1,500 euros to posted employees depends on whether they are to be regarded as a “wage tax” employer in relation to the employees concerned. For this purpose, the criteria of the economic employer in accordance with the double tax treaty are to be applied in the case of foreign postings. Accordingly, if the employees are integrated into the domestic company and the latter bears the costs of the secondment, it can be assumed that they are an economic employer.
The situation is unproblematic for outbounds who are or were sent abroad for a maximum of three months. Here the German company usually remains the wage tax employer and therefore a payment according to § 3 No. 11a EStG is possible. In all other cases, a case-by-case assessment must be carried out, in which the overall circumstances of the assignment must be evaluated.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.