The case
A publishing house intended to offer its employees tax-free benefits. The plan was to purchase the employees’ personal smartphones for a symbolic purchase price and then offer them these devices as company smartphones. The employees would then be permitted to use these company smartphones for personal and business purposes. At the end of their employment relationship, they would have to return the smartphones to their employer.
The employees concluded the mobile phone contract themselves and their employer reimbursed the mobile phone costs.
This will enable the employees to claim the costs of the mobile phone contract as a tax-free benefit pursuant to Section 3 No. 45 of the Income Tax Act (EStG).
However, the tax authorities were not enthusiastic about this plan. In particular, the symbolic purchase price aroused the authorities’ suspicion. Consequently, the company was accused of improper legal structuring or abuse of structuring options pursuant to Section 42 of the German Tax Code (AO). According to the authorities, the reimbursed mobile phone costs represented taxable wages and the employer was liable for the tax.
The employer was not convinced and took legal action against this decision – and succeeded in every instance.
What was the legal problem?
The dispute revolved around whether or not reimbursing costs represents a tax-free non-cash benefit in accordance with Section 3 No. 45 of the Income Tax Act (EStG).
In principle, it is a non-cash benefit if an employee is also permitted to use a company smartphone for personal use free of charge or if the employer covers the costs. However, this non-cash benefit is tax-free under certain conditions as described in Section 3 No. 45 of the Income Tax Act (EStG) if the smartphone is a “company device”. This gives employers an easy means of providing employees with tax-free benefits.
In the past, the tax authorities had doubts as to whether the smartphone was truly a company device if employers had purchased the smartphones from employees for symbolic purchase prices.
The Federal Fiscal Court ruled that the purchase price itself is not important
However, the Federal Fiscal Court concluded that the (low) purchase price for the smartphones was not decisive when determining whether these smartphones were considered “company devices”.
This is because the employer became the owner of the smartphones under civil law on the basis of the purchase agreement. Furthermore, the devices had been purchased and have to be returned by the employees at the end of their employment contract.
The court did not regard this as a fictitious transaction: Both parties to the transaction intended the employer to become the owner in order to achieve the tax advantage.
Not an abuse of rights
In addition, the Federal Fiscal Court did not regard this as an abuse of structuring options: This approach to obtaining company equipment represents an appropriate, simple and practical option for employers. These “solutions” are exactly how tax advantages expressly provided for by the legislator can be implemented. Therefore, the amount of the acquisition costs does not play a role according to the Federal Fiscal Court when determining whether the smartphone is considered a “company device”.
What can we do for you?
Do you have questions about tax optimization through the provision of company smartphones? Do not hesitate to contact us!
Summary of the key facts:
- Employers can provide employees with company smartphones and reimburse the mobile phone costs.
- This reimbursement to the employee represents a tax-free non-cash benefit pursuant to Section 3 No. 45 of the Income Tax Act (EStG).
- The Federal Fiscal Court has ruled that employers purchasing the smartphone from the employee for only a symbolic purchase price is irrelevant with regard to tax law.
