If the employer bears the costs for a reception on the occasion of the employee's retirement, these costs do not lead to wages for the retiring employee if it is a celebration of the employer.
Practical example:
The plaintiff (a financial institution) organized a reception on its premises to bid farewell to the outgoing CEO and at the same time introduce his successor. The organization and implementation were the responsibility of the HR department of the financial institution. The guest list was determined independently of the specific event according to business-related aspects. The approximately 300 guests included former and current members of the applicant's Management Board, selected employees, the Board of Directors and members of the public from politics, administration and major companies and institutions in the region. Representatives of banks and savings banks, associations, chambers and cultural institutions as well as representatives of the press were also present. Eight family members of the outgoing CEO were also invited. The costs for the reception were borne by the financial institution.
The tax office took the view that the costs were attributable to the retired CEO as wages and held the plaintiff liable for the wage tax due on this. It referred to R 19.3 para. 2 no. 3 LStR, according to which customary benefits in kind provided by the employer on the occasion of an employee's farewell constitute taxable wages if the employer's expenses exceed € 110 per guest.
The tax court partially upheld the claim and only affirmed taxable wages to the extent that the costs were incurred by the departing CEO and his family members. The BFH rejected the tax office's appeal and essentially confirmed the decision of the tax court.
According to the BFH, if the employer finances a party, this only constitutes remuneration if it is a private party for the employee, but not if the guests are invited on the occasion of a Firm of the employer are entertained. Whether it is a celebration of the employer or the employee must be decided taking into account all the circumstances of the individual case. In addition to the reason for the celebration, it is also important who
- acts as host,
- determines the guest list,
- is invited and
- where people celebrate and
- the nature of the party (business or private).
The BFH had already established these principles in 2003 in its ruling of 28.01.2003 (VI R 48/99) on the birthday party of a member of the board of directors of a cooperative bank and has now applied them to the case of the retirement of the chairman of the board of directors. The farewell has a predominantly professional character. It represents the last act of the employee's active service with his employer and is therefore (still) part of his professional activity. The farewell of the outgoing CEO was also accompanied by the inauguration of his successor. The plaintiff herself acted as host of the reception and determined the guest list. The reception ultimately took place on the plaintiff's premises.
The BFH also ruled that, contrary to the opinion of the tax court, the costs incurred by the CEO himself and his family members do not constitute wages if, as in this case, the participation of family members is customary in the company.
Conclusion: Companies can cover the costs of the farewell party for their departing employees without any disadvantages in terms of payroll tax, as long as the event is organized as a company celebration.