Municipal tax liability from the perspective of the BMF

In a 58-page information dated May 9, 2005, the BMF meticulously summarized the current administrative practice and the extensive case law of recent years. The following summarizes the key criteria for the business sector:

Subject of tax

The wages paid to employees in a company’s domestic branch are subject to municipal tax at the rate of 3% of the monthly gross wage amount. If this does not exceed €1,460 in the calendar month, €1,095 of it is deductible.

Servants

Payroll-related employment relationship

In addition to the actual employees, this also includes up to 25% participating managing directors of a GmbH or board members of a AG, even if they are not paid on a commission basis. Persons based abroad who have their place of work in Germany and usually travel from their place of residence to that place every working day (border residents) are also included. Officials of private legal entities (board members of associations, cooperatives, foundations, etc.) are included only if there is a genuine employment relationship.

Employee-like employment

:: Persons significantly involved in capital companies as employees within the meaning of the KommStG.

• Participation of more than 25% to less than 50 percent without a blocking minority in the case of direction-based commitment, if integration into the organization of the business is given, no entrepreneurial risk that is significant in terms of the business is carried, and ongoing remuneration is provided.
  
• Shareholding of more than 50%, or more than 25% with a blocking minority, without binding direction. In this case, incorporation into the business is sufficient, with the entrepreneur’s risk and the type of remuneration being irrelevant.

:: Integration

This condition is met when a person performs the duties of management for an extended period of time. The civil law classification of the activity does not matter (genuine employment relationship, independent service contract, work contract or assignment). However, if a work contract exclusively refers to a specific project to be completed, this is against inclusion. However, the inclusion is not precluded: the activity of managing several companies, irregular work delivery, the delegation of tasks, and the possibility of being represented.

:: Entrepreneurial risk

A material risk exists when remuneration is actually subject to significant fluctuations (occasional failure to pay or the repayment of the same), which are related to the company’s economic success.
No relevant entrepreneurial risk exists when only part of the remuneration is dependent on success, social security contributions are borne by the shareholder himself, travel costs are not fully reimbursed, the work clothes themselves have to be purchased, or the remuneration depends on the number of hours worked.
Furthermore, there is opposition to taking on the entrepreneurial risk if entitlement to a pension and severance pay is in place. Since the assumption of liability or a guarantee for the company primarily involves the formation of the shareholders, the function of managing director is not affected by this and therefore has no impact on the management director’s salary.

:: Salary

It does not depend on the contractual arrangement, but rather on the actual processing of the payment. For example, if no remuneration is due in loss-making years, it depends on whether it has actually not been paid out, which must be assessed across periods. A monthly payment is not necessarily meant to be understood as ongoing remuneration.

:: Different assessment basis for KommSt and ESt

- Social security
Contributions from significantly involved managing partners that are retained and paid by the company reduce the taxable income, but do not affect the assessment base for the KommSt. employer contributions that are paid by the company because of a social security-related employment relationship of their managing partner; these contributions do not count as remuneration within the meaning of the KommStG.

- Private use of a company vehicle
For the KommSt, the monetary advantage resulting from the application of a value-based approach, either in accordance with the Value-Based Tax Act (1.5% of the purchase price max. 600 p.m.), or in the amount of (estimated) actual costs, must be recorded. According to case law, for the profit determination under the Value-Based Tax Act, the value based on the actual costs of significantly involved shareholders-managers is, however, exclusively to be assessed in accordance with § 184 (cf. Client Info July 2005).

- Interest on the settlement account
These relate to the formation of the shareholders and are therefore not subject to municipal tax, but are very much liable to income tax (no KESt deduction!).

- Hidden profit distribution
These represent income from capital assets and are therefore not subject to municipal tax.

Critical remark:

Since there is only one Servant fiction iSd KommStG exists, but in terms of the income tax it constitutes income from independent work if they are present, all tax benefits of the payroll tax (fixed tax rates for the 13th and 14th paychecks, tax-free allowances, subsidized benefits etc.) are eliminated. Therefore, under the guidance of the VfGH of 1 March 2001, G 109/00, the benefits are eliminated; instead, the disadvantages take effect; after all, this is entrepreneurial activity with an incomparably high tax burden!

Temporary employment

Employees under the KommStG are:

• Persons who are entrusted with the performance of work within the domestic territory of a company for work performed domestically or abroad.
• Persons who are not assigned by an enterprise's domestic establishment to perform work domestically are, to that extent, with the entrepreneur to whom they are assigned.
• Persons assigned to the company for services by a public legal entity. Convicted prisoners are excluded from this.
• Persons who are assigned to perform work in Germany from a foreign establishment are considered employees – within the meaning of the KommStG – of the employing company. In this case, there may be a deviation from the payroll tax if, according to the DBA law, a payroll tax exemption applies for short-term activities.

Further information

The BMF also provides detailed comments on the following topics: the concept of an entrepreneur and places of business (in- and abroad), the basis for assessment and its breakdown, taxpayers, exemptions, auditing, and criminal regulations.

GPLA-RL

This policy includes the Groundings of the common PAll of them Ldependent on the weather AThe details of which are to be applied as of 1 January 2003 are explained in more detail. This examination includes the salary-related taxes under the EStG, the municipal tax and the ASVG contributions.

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