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Tax Advice

Supposed simplification: the new travel expense law regarding taxes

Giving it the auspicious title “law establishing changes and simplifications to business taxation and the travel expense law regarding taxes“ the legislator has introduced comprehensive changes and supposed simplifications to the travel expense law regarding taxes. They must be applied by all payroll departments as of January 1st, 2014. On closer inspection, however, this turns out to be a highly complex matter - especially in case of changing work activities.

For instance, the term „regel­mä­ß­ige Arbeits­stät­te“ (regu­lar work­place), which has always been con­tro­ver­sial, will be defi­ned by law as of 2014 and replaced by the term „erste Tätig­keits­stät­te“ (pri­mary place of work), which has not been tes­ted in practice. The emp­loyee has such a pri­mary place of work, that he is per­ma­nently assig­ned to, in a firmly estab­lis­hed place of busi­ness of the emp­loyer, a com­pany or a third party deter­mi­ned by the emp­loyer (espe­cially a custo­mer). In the future the emp­loyer will be able to spe­cify the loca­tion of this one parti­cu­lar pri­mary place of work in a tax effec­tive way by means of assign­ment. Whe­ther the emp­loyer spends most of his work time in the pri­mary work place is of no con­se­qu­ence here. It suf­fices if he only has a minor per­ma­nent emp­loy­ment there or he is merely emp­loyed there until furt­her notice even if it is only for minor sup­por­ting work such as picking up orders or a com­pany car. Hence, for tax pur­po­ses it is pos­si­ble to spe­cify a pri­mary work place that is dif­fe­rent from the place of work sti­pu­la­ted in the emp­loy­ment con­tract. Howe­ver, if the emp­loyer does not make an assign­ment or it is not clear tem­po­ral as well as quan­ti­ta­tive cri­te­ria take effect as sti­pu­la­ted by law: The pri­mary place of work is then deter­mi­ned based on where the emp­loyee typi­cally spends his work­days or two work days per work week or is sup­po­sed to spend at least one third of his agreed regu­lar work time. Sales rep­re­sen­ta­ti­ves for instance who have to tra­vel around visi­ting dif­fe­rent custo­mers do the­re­fore usually not have a pri­mary place of work.

The absence as well as the exp­li­cit spe­ci­fi­ca­tion of a pri­mary place of work has sub­stan­tial con­se­qu­en­ces: For trips bet­ween his resi­dence and the pri­mary place of work the emp­loyee can merely deduct the dis­tance tra­vel­led from his taxes but he can­not sub­mit tra­vel expen­ses. If there is no pri­mary place of work or work rela­ted trips are made to places other than the pri­mary place of work the actual costs or the lump sum of EUR 0.30 per kilo­me­ter are cate­go­ri­zed as income-rela­ted expen­ses pro­vi­ded that there is neit­her a “ga­the­ring point” sti­pu­la­ted by the com­pany nor an “ex­ten­sive work area”. Addi­tio­nally, if there is a suf­fi­ci­ent time of absence addi­tio­nal sub­sis­tence expen­ses and, if app­lica­ble, costs of accom­mo­da­tion can be deduc­ted or paid by the emp­loyer free of income tax.

At the end of the day it will be in the emp­loyee’s inte­rest not to have a pri­mary place of work or, if he does, the one that is clo­sest in dis­tance to his place of resi­dence. Emp­loy­ers that are requi­red to refund tra­vel expen­ses to their emp­loyees in the amo­unt that is exempt from income tax will strive to assign such a pri­mary place of work so as to keep the tra­vel expen­ses they have to refund to a mini­mum or at least pre­vent them from inc­rea­sing.
In order to avoid having dis­cus­si­ons with every single emp­loyee about the deter­mi­na­tion of their pri­mary place of work emp­loy­ers ought to check if homo­ge­neous regu­la­ti­ons are to be intro­du­ced for cer­tain groups of emp­loyees (such as tra­vel­ling and non-tra­vel­ling emp­loyees) or a dis­cus­sion can be depri­ved of its basis by means of pre­pa­ring or modi­fying tra­vel expense gui­de­li­nes as soon as pos­si­ble.

In the course of the sim­p­li­fi­ca­tion chan­ges were also made to the so cal­led „Drei­mo­nats­frist“ (three month period). In the case of exter­nal, long-term work rela­ted acti­vi­ties or two sepa­rate hou­se­holds addi­tio­nal sub­sis­tence expen­ses are only deduc­ti­ble wit­hin the first three months. If there is an inter­rup­tion of at least four weeks the three month period starts over. Since the rea­son for the inter­rup­tion will be irre­le­vant in the future this will pro­bably result in an inc­rease in the num­ber of vaca­tion requ­ests for periods lon­ger than four weeks.

The new tra­vel expense law regar­ding taxes seems to be ano­ther proof that a sim­p­li­fi­ca­tion of Ger­man tax law is near impos­si­ble to achieve. Things that may sound simple and plau­si­ble on paper often turn out to be an aggra­va­tion in dis­guise due to the inter­ac­tion of several regu­la­ti­ons as well as the expen­di­ture of time in connec­tion with the assign­ment, con­trol and cer­ti­fi­ca­tion pro­cess.

Short sum­mary of new tax tra­vel expense law

The chan­ges that have been made to the law on tra­vel expen­ses, which also apply to income-rela­ted expen­ses, are equally app­lica­ble to busi­ness expense deduc­ti­ons for income from com­mer­cial acti­vi­ties and self-emp­loy­ment.

Defini­tion of a “pri­mary work­place”

The legal term “re­gu­lar work­place,” which was never defi­ned, has now been replaced by “pri­mary work­place” and is expressly defi­ned in the law. The pri­mary work­place is a fixed faci­lity of the emp­loyer, an affi­lia­ted com­pany, or in excep­tio­nal cases a thirdy party spe­ci­fied by the emp­loyer to which the emp­loyee has been per­ma­nently assig­ned.

Trans­por­ta­tion costs

The flat rate for dis­tance tra­ve­led has now been defini­ti­vely regu­la­ted so that trans­por­ta­tion costs for busi­ness trips (not trips bet­ween a tem­porary living place and a pri­mary work­place or trips to family resi­den­ces) can be deter­mi­ned by trea­ting the actual costs as income-rela­ted expen­ses, or alter­na­ti­vely by using the flat rate per kilo­me­ter already in force (EUR 0.30 by car) pur­su­ant to the Federal Tra­vel Expen­ses Act.

Addi­tio­nal expen­ses for meals

The mini­mum amo­unt of time on the road in order to qua­lify for the flat rate for addi­tio­nal meal expen­ses has been dec­rea­sed, and the three-tie­red scale in force until now has been replaced by a two-tie­red scale of flat fees, set at EUR 12 and EUR 24. As before, the flat rate app­lies only to emp­loyees who have been wor­king at a single work­place for less than three months. Any inter­rup­tion in an emp­loyee’s work at a spe­ci­fic work­place for 4 weeks or more cau­ses the three-month period to start over. If an emp­loyer or any third party desi­g­na­ted by the emp­loyer pays for a meal, the flat rate will typi­cally be redu­ced by 20% for a bre­ak­fast and 40% for a lunch or din­ner from what it would have been for a full 24-hour period.

Dou­ble resi­den­ces

In cases where emp­loyees are requi­red to main­tain two places of resi­dence, the typi­cal cost of local rent will not be the deter­mi­ning fac­tor. Ins­tead, an upper limit of EUR 1,000 per month has been set until the emp­loyee’s actual cost of rent can be deter­mi­ned.

Lod­ging expen­ses

Lod­ging expen­ses during assign­ments out­side of the pri­mary work­place can be deduc­ted as income-rela­ted expen­ses wit­hout res­tric­tion for up to 48 months. At the end of this time period (for long-term out-of-office assign­ments), expen­ses may not be trea­ted any dif­fer­ently than they would be in cases of dou­ble resi­den­ces – which means no more than EUR 1,000 per calen­dar month.

Meals payed for by emp­loy­ers

Regu­lar meals cos­ting no more than EUR 60 that an emp­loyer pro­vi­des for his emp­loyees because of an out-of-office assign­ment are to be asses­sed in the future at their actual value.

Vali­dity period of emp­loyee with­hol­ding tax exemp­tion

For the sake of admi­ni­s­t­ra­tive sim­p­li­city, exemp­ti­ons for emp­loyee with­hol­ding tax pur­po­ses can­not be allo­wed for any lon­ger than a period of two calen­dar years from the begin­ning of the first calen­dar year when the exemp­tion took effect.

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