Christmas party and tax office: New rules 2024

The Federal Fiscal Court has set new rules for companies at Christmas parties. The Federal Social Court has also issued guidelines

Frankfurt am Main

November 21, 2024

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Company events: What companies should know about payroll tax and the tax office

Employers can tax wages received on the occasion of a company event at a flat rate of 25%. The Federal Fiscal Court (Bundesfinanzhof) redefined the scope of the flat-rate wage tax for company events in its ruling of March 27, 2024 (case number VI R 5/22):

• According to the legal definition applicable from the 2015 tax year, a company event can also be considered a company event if it is not open to all employees of a company or part of a company. Even in these cases, the employer can levy a flat rate of 25% payroll tax on the non-cash benefits.

• However, the tax-free allowance of €110, which results in the exemption from income tax of the monetary benefit from a company event, can only be claimed if the company event is open to all members of a company or part of a company.

TaxPro Note:

This clarification by the Federal Fiscal Court is of great practical importance. Companies can now tax non-cash benefits from company events, such as company outings, Christmas parties, and anniversary celebrations, at a flat rate of 25%. However, if the tax allowance of €110 is to be used, the additional requirement that the company event be open to all members of a company or part of a company must be met.

It should also be noted that exemption from social security contributions only results from timely lump-sum taxation. According to the decision of the Federal Social Court (BSG) of April 23, 2024 (case number B 12 BA 3/22 R), the lump-sum taxation must be applied "with the payroll for the respective accounting period." Unlike wage tax law, the decision regarding exemption from social security contributions under social security law must be made in the month in which the salary is received. According to the outcome of the discussion of the leading social security organizations of April 20, 2016, the lump-sum taxation of 25% must actually be applied by the end of February of the following year at the latest.

Flat-rate taxation within the meaning of social security law requires that the employer has registered the flat-rate tax with the tax office by February 28 of the following year at the latest.

TaxPro recommendation for action:

Due to the decision of the Federal Social Court, employers should ensure that flat-rate taxation is carried out in a timely manner, particularly for the Christmas or year-end celebrations currently taking place.