When are services tax-free and often overlooked by consultants ?
Anyone who is reduced in earning capacity as a result of a third-party-induced damage to health receives compensation for this, which is taxable as it replaces earned income. However, for the reduced ability to carry out unpaid household work, he receives a tax-exempt loss of budgetary management. Compensation for damages due to mobbing (FG Rhineland-Palatinate, judgement of 21.03.2017, Az. 5 K 1594/14) or violation of the Working Hours Act (ArbZG) or other occupational health and safety regulations (ArbSchG) is also tax-free, as are compensation for pain and suffering and compensation for additional expenses, for example due to the need for care. The same applies to compensation for damages because the change from statutory to the less expensive private health insurance is no longer possible due to the damage to health, or only with risk surcharges, whereby the probable future amount of damages would have to be proven by an actuarial report.
Carelessness of the tax advisor for employers and employees
Wage tax and social security are at least as complicated as the taxation of the Mittelstands-GmbH. However, this is usually in the hands of tax clerks, who bear the responsibility, but are not (allowed to) advise alone.
Up to more than 50 possibilities for tax-free or only flat-rate taxable benefits from the employer to his employees therefore remain unused – in each case completely exempt from social insurance.
Classic questions of incomplete fact-finding are those concerning the deductible maintenance for non-marital partners with up to more than EUR 8,000 in deductible potential – or the question of medical costs; both of which are tax deductible as “extraordinary expenses”.
Tax exemption for partial retirement, telephone, internet, computer and other
The law on part-time work for older employees allows top-up amounts to be paid; in addition, expenses for higher insurance with the statutory pension are possible – tax-free. The details are complicated – so the possibilities remain mostly unused.
If employees also use their computers for business purposes, the reimbursement of costs and private use would be tax-free – why then would employees still buy PCs, tablets and iPhones for private use? This also applies to the use of Internet, DSL, fax, mobile phone, LTE, even at flat rates.
Tax exemption in cases of discrimination, violation of occupational safety, bullying
Any compensation that does not involve compensation for wage payment is tax-free. This includes compensation for the waitress who was unlawfully released from work and therefore cannot receive a tax-free tip – possibly combined with an unfounded ban from the employer’s premises. But also age discrimination, bullying, sexual harassment and compensation for damage to health through “double shifts without breaks”, which is common in certain industries. Higher five-digit amounts may well be involved as compensation for immaterial damage – tax-free of course.
Only the replacement of taxable income is taxable (BFH, ruling 26.11.2008, BStBl. 2009 II 651).
Taxable are therefore compensation payments due to reduced earning capacity, even if they come from an (possibly opposing) insurance company (BFH, judgement 21.01.2004, Az. XI R 40/02), § 24 No.1a EStG. Who perhaps by “mistake” has only claimed the net loss of income without taxes, must still pay taxes from it, also again on it, if these are refunded to him by the injuring party. The decisive factor is whether a concrete exchange of services exists – or whether the compensation is seen as a “substitute” for it, so to speak, and is then taxable (BFH, judgement of 18.10.2012, ref. VI R 64/11).
Conversely, this means that compensation to the family for the loss of domestic labour by the employer may be tax-free. This has absolutely nothing to do with the renaming of taxable payments in court into tax-free ones and the mass recording of these payments in settlements by judges, for example by adding them to the damages for pain and suffering. They would be obligated against themselves to the charge, if they recognize it, then one could assume, § 116 AO.
Maintenance as a tax-saving model
In general, maintenance, marital and for relatives is generally tax-free, § 3 EStG. There are also those of divorced persons which the payer can deduct – within limits, and the recipient then has to pay tax on them. This problem has almost been solved since about 2006, because postmarital maintenance is due for perhaps one to three years at the most – after that the spouses fall back on those professional opportunities that may have existed before marriage. Since then, the divorcee of the dentist with lifelong care at the level before the divorce has been abolished – some divorced people nevertheless continue to pay to this day, or have not had the care settlement recalculated since 2009, which can be cheaper.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
http://hm-infinity.de/ (Infinity magazine, 10-11/2018, pages 20-21)
http://www.handwerkernachrichten.com (published on 15.03.2019)
www.submission.de (published in issue no. 61 of 27.03.2019, title page + page 32)
www.neinhaus-verlag.de (published in Argragewerbe Intern, issue 03-2019, page 12 under the heading: Alternatives to wage replacement)
www.experten.de (published on 05.04.2019)
www.handwerke.de (published in Computern im Handwerk, issue 03/04-2019, pages 6 and 7 under the heading: When services are tax-free – and are often overlooked by consultants)
Our office in Munich
You will find our office at Fasolt-Strasse 7 in Munich, very close to Schloss Nymphenburg. Our team consists of highly motivated attorneys who are available for all the needs of our clients. In special cases, our law firm cooperates with selected experts to represent your interests in the best possible way.
About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
»More about Dr. Johannes Fiala
On these pages, Dr. Fiala provides information on current legal and economic topics as well as on current political changes that are of social and/or corporate relevance.
Arrange your personal appointment with us.
You are already receiving legal advice and would like a second opinion? In this case please contact Dr. Fiala directly via the following link.
The first telephone call about your request is free of charge.