The Legal Guide to Germany | Prize Money for Participating on TV Show Taxable as other Earnings

The Legal Guide to Germany | Prize Money for Participating on TV Show Taxable as other Earnings

When being paid to participate in a TV show as a candidate, is the money a tax-free reward or is it a taxable income? What do you think? The BFH 's judgment of November 28, 2007 (re IX R 39/06) now gives you the answer.
Sandy participated in a TV dating series with six shows. Following the contract signed with the producer, she received a remuneration of €9,000. Her duties were to play a woman on search for a new boyfriend. She was to remain silent on the details of the contract and affirm any and all press, promotional and advertising measures. Only at the beginning of the show did she learn that her new partner was already determined and it was the main task of her and her partner-to-be to believably transport not only to the audience but also to their families that they had met and fallen in love during the dating show and wanted to marry within two weeks. When this happened and the family members appeared at the ceremony then she and her family would gain a further €250,000 prize money.
After she received €9,000, and with her relatives a further €250,000, the tax office demanded a prepayment from her on the estimated annual tax on both prizes. The tax office considered the trophy money to be "other earnings sonstige Einkünfte”– according to §22 no. 3 EStG.
Since her extra-judicial appeal was without success, she initiated legal action. The tax court dismissed the case considering the prize of €250,000 and granted the tax office the claim of taxing Sandy on the prize of €9,000. Thereupon the tax office changed the tax assessment, which in the mean time was serviced to only consider the prize of €9,000. Nevertheless, she went on to the next instance to fight for what she believed was correct. She argued that a remuneration can be considered as taxable income when it is based on a trading of services (money for acting). Such is not the case as in dating shows like the one concerned by this dispute. The producer has no interest in the candidate's success because it is often more interesting for the audience to see a candidate fail. Therefore, there was no exchange of services. Finally, this prize money is comparable to hitting the jackpot in a lottery. This income is without any doubt not taxable as income.
The Federal Tax Court decided that the Finanzamt correctly assessed Sandy on the income of €9,000. This money qualifies as other earnings in terms of §§32 no. 3, 2 I no. 7 EStG. This source of income applies to all income that does not belong to the other categories. A service in terms of §22 no. 3 EStG is every activity, tolerating or forbearance, that is not a sale or similar to a sale subject to a contract with the attributes of remuneration. It is therefore important that the payment is inducement wards to a behavior of the tax-payer. It suffices that the payment is assumably for the tax-payer's behavior. Since this is so, Sandy's prize money is taxable income. This prize is not comparable to winning a jackpot because there is no performance and return performance behavior owed for the payment.
On the other hand, Sandy rendered a persuading performance as an actress for the payment she received. All entertainment shows like the one in which she participated "live” from the failure or victory of the candidates. The producer will only then be interested in paying such a high sum for her participation when persuadingly acts. Therefore, her payment is related to her activity as an actress.
When you come into this situation, don't forget to deduct your costs related to this income. This will typically be travel and accommodation costs. If you bought a new dress or very fancy suit, you might hope to deduct this also. Sorry, that is not possible because clothing which can be worn for "everyday purposes” is not deductible as this is considered as a private and not income related expense. Something else would be true if had to appear in a special costume like a shark, knight, clown, etc. Published on the old CMS: 2008/6/5Read on the old CMS till November 2008: 3,037 reads

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The Legal Guide to Germany | Missing Intention to Achieve Income When Employed

The Legal Guide to Germany | Missing Intention to Achieve Income When Employed

Will the tax office accept a surplus of expenses instead a surplus of income? The Federal Tax Court decided this question on August 28, 2008 (re VIR50/06).
Sam wanted to be a politician but after having started to campaign he gave up his intention. During his campaign, he spent a whole lot of funds. In his income tax return, he declared a surplus on his expenses above as anticipated costs for his employment as a politician. The tax office assessed his taxable income as "0.00" not negative.
BFH assumes that when you want to have negative income from employment considered then this must be done with the intention to achieve income - at least on the long run. This intention is tested with a "surplus prognosis", further personal motives for accepting the losses are not to play a role. When this test shows that there is no intention to achieve income then any expenses will be considered as a "hobby" and deduction will be denied.
The individual employment will be inspected. The total income from this one position must point to a surplus of income. Understand as "total income" your expected salary, plus any surcharges or additions, commissions, and old-age pension relating to mortalitiy tables. Fictive, future possibilities of income are not to be considered.
(= hobby)" has now been applied for employment and not only self-employment. Never forget, the state is hungry for money!

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The Legal Guide to Germany | Limited Taxation for an Employee relocating Abroad?

The Legal Guide to Germany | Limited Taxation for an Employee relocating Abroad?

Severance pay, which is compensation for lost future earnings, for a worker who has moved out of country, does not count as a limited, taxable, domestic income for the purpose of §49 Abs.1 Nr.4 EStG 1997.
Jerry was employed as a managing director of GmbH Geschäftsführer. It was agreed that his employment was to end prematurely. As a compensation for ending the contract in general as well as the remaining salary, he received 4.6 mil. DM - in installments. Thereupon, Jerry left Germany and relocated to Switzerland. He declared in his tax return as taxable in Germany his salary (as per tax card) plus the part of his severance pay relating to the no-competition clause. He declared the remaining DM 3,226,310 as not taxable in Germany. His tax office was of a different opinion.
The BFH agreed with Jerry. The amount in dispute, DM 3,226,310 was not subject to German taxation. Subject to full German taxation is only such income achieved during the time he had his residence or usual sojourn in Germany (§1 I 1 EStG). Persons are fully subject to German taxation when their residence (§8 AO) or usual sojourn (§9 AO) is in Germany. At the time, he received the remaining part of severance pay, it was evident that he was in Switzerland. He therefore did not have either residence nor a usual sojourn here any more. He was not living for an indefinite time in his German apartment anymore.
The remaining part of his severance pay, i.e. that not to be taxed in full in Germany, is also not subject to partial taxation following §49 EStG. Such income will be partially taxed in Germany, when income from (self-)employment is performed in Germany - and with living here. Precedents of the Federal Tax Court interpreting double taxation law for income from dependent work say severance payments are not paid for a certain activity but for the end of previous employment. Therefore, Jerry's disputed income is not subject to partial taxation in Germany. It remains reserved for taxation in Switzerland.

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The Legal Guide to Germany | Is Interest from Foreign Life-Risk Insurances Subject to Taxation?

The Legal Guide to Germany | Is Interest from Foreign Life-Risk Insurances Subject to Taxation?

The BFH (re VIII R 47/01 judgment of March 1, 2005, published February 15, 2006) ruled if and how interest obtained from investing in life-risk insurances abroad are to be taxed.
Anthony, Bob, and Charles own – each by a third – a securities deposit at a Swiss Bank mainly containing fixed interest securities in different foreign currencies. This deposit was financed by the same bank that holds the deposit. Anthony, Bob, and Charles were not paying off their debt. From the acquired interest from their investment, the loan interest as well as the premiums for the life insurance were financed. As the life insurances matured in 1986, the debt was paid off. They received about DM2.552 mill. Their German tax office assessed this input of interest and added another DM2.224 mill. for taxation after an audit because it assumed that this further income was taxable in Germany.
Anthony, Bob, and Charles appealed this decision without success. The Tax Court disagreed with the tax office and upon appellation of the tax office Anthony, Bob, and Charles had their opinion affirmed by the Federal Tax Court.
Anthony, Bob, and Charles argue that the interest received is tax free in Germany because their insurance and the cashing-in met all the requirements of the law. The tax office argued that only if the insurance premiums were deductible as extra-ordinary expenses would they be tax-free.
The Federal Tax Court denied tax liability. The opinion of the Federal Fiscal Court follows the prevailing opinion of legal publications and contrasts the opinion of the Federal Ministry of Taxes. This legal rule just stipulates that premiums paid to insurances to set up a capital covering old-age security are tax exempt if 1.) the surplus is not cashed before 12 years after the policy has been obtained, 2.) before 60 years of age or for supplementing a disability pension, or for supplementing a disability pension or widows' and surviving dependents' pension. Generally, such income is not subject to taxation. Published on the old CMS: 2006/12/21Read on the old CMS till November 2008: 890 reads

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The Legal Guide to Germany | Inheritance Tax Act is Invalid

The Legal Guide to Germany | Inheritance Tax Act is Invalid

After five years, the BVerfG (re BvR 421/05 of November 7, 2006 published on January 31, 2007) came to a decision that the present estate tax act is partly unconstitutional.
So what happened? In the year 2002, the BFH put the case on hold to call upon the Federal Constitutional Court to decide upon this constitutional issue. The question was whether the valuation of real estates and company's assets as well as the unilateral preferential treatment with an exempt sum and a procentural deduction pursuant to §13a ErbStG were constitutional.
The Federal Constitutional Court agreed with the Federal Tax Court as it also sees the Principle of Equality violated. The judgment centers on questions of value assessment or valuation, whereby the value of company's assets are at issue. The main aspects of the Federal Constitution Court's judgment are:
The approach with balance-sheet values for the valuation of company assets structurally hinders an approach to market value. This does not purposefully lead to a fair and equitable tax relief but more to a random and arbitrary valuation. This especially relieves the tax burden of high yield enterprises.
The valuation of real estate also leads to values that are anywhere between 20% to 100% of real worth. Thus fair and equitable taxation does not result. The Federal Constitutional Court left the question open whether a preferential treatment under mitigating circumstances is constitutional. But the court clearly stated that there could be grounds for a preferential treatment but not by using the valuation by amount.
Hint:
The judgment effects no immediate changes to the Estate and Gift Tax Act. All tax returns for estate tax have been given preliminarily assessment since 2001. Since the Federal Constitutional Court has given a long grace period (until December 31, 2008) to adopt new provisions in the law in conformity with the changes required. Therefore, there is no reason to alter your portfolio.Published on the old CMS: 2007/3/7Read on the old CMS till November 2008: 136 reads

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The Legal Guide to Germany | Exemption for Interest Withholding Tax

The Legal Guide to Germany | Exemption for Interest Withholding Tax

) has been reduced to a limit of only €750 / €1,500 (single / married). The good news is that, following the trend in improved electronic banking services, an application for exemption from withholding tax Freistellungsantrag can now be made to a bank online. And, you are allowed to split the exemption amount between two or more accounts. The advantage is that you do not have to fill out the tax paperwork in the following year and wait to get your refund on the exempted amount for withholding tax.
If this is something for you, check your banks website or ask your banker if they already support such online assignment. Do not worry to place such declaration online. It will be safe, because you will need your PIN and TAN – just like online transfers! The Federal Ministry of Finances has already given its okay.
It will be easy to file an exemption, but so will making a mistake be easier. So, keep an overview of all your applicable exemptions by creating a table something like this one:
Exemption Application of
Bank Name
Amount of Exemption
Jan 5, 06
No. 1
500
March 15, 07
No. 2
200
Published on the old CMS: 2007/1/9Read on the old CMS till November 2008: 1,381 reads

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The Legal Guide to Germany | Ex Does not Always Have to Agree to Joint Tax Return

The Legal Guide to Germany | Ex Does not Always Have to Agree to Joint Tax Return

A divorced couple was not able to effectively communicate anymore. The woman, shortly before their divorce, asked her husband if he would agree to be jointly taxed. Joint tax declarations are only possible for married couples. However, in the year of separation, the law exceptionally for the last time allows you to declare your taxes jointly. The husband refused. Only after receiving the assessment did he learn he fooled himself with his stubbornness. She received a tax reimbursement of EUR3,500 and he had to pay EUR7,000 on taxes. If they had jointly declared their taxes, they might have not had to pay anything at all.
He then demanded his ex-wife to apply for joint taxation for that last joint tax year. This time she refused. He sued her in court that she agree. The judges of OLG Frankfurt (re 19 W 52/05) gave him a brush off. They ruled that a joint assessment could not always be demanded. Especially, in this case, since the husband was offered to collaborate and he refused.
When elaborating a divorce, it usually makes sense to work one very last time together and declare one's taxes jointly. However, discuss this with your tax advising attorney, or tax consultant that he may show you the financial difference between joint and separate declaration. Published on the old CMS: 2007/1/18Read on the old CMS till November 2008: 102 reads

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