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Nexia Ebner Stolz

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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