Customs Code Amendment Act: parliamentary finance committee proposes amendments with regard to business events

On 4 December 2014, the Customs Code Amendment Act was passed by the federal parliament. The Act is based on the proposal of the parliamentary finance committee with only a few changes to the government draft.
It remains interesting whether the federal council will approve the Act on 19 December 2014. Since the majority of proposals of the federal council were again not adopted, the rejection of the Act with possible reference to a conciliation committee cannot at least be excluded. A further deferment of the proposals of the federal council to the next legislative procedure in 2015 is, however, more likely.

The adjustments made by the finance committee with regard to the taxation of business events are of primary interest to businesses:

• The most important amendment is the conversion of the existing exemption limit of 110 euros to a tax-free allowance of 110 euros. The planned increase to 150 euros was not, on the contrary, pursued.
• For the calculation of the benefit to the employees, in addition only the expenses of the external framework of the event incurred vis-à-vis third parties are to be included while so far inclusion of the proportionate share in the overall costs was planned. The costs of the rooms and of an event manager are therefore to be included, not, however, the costs of the employer itself for the external framework.
• Contrary to the original planning in the governmental draft, the provision applies not only if the participation is open to all staff but also if the event only concerns staff of part of the business. A part of the business is intended to mean an operational organisational unit of some significance and size, the existing administrative provisions in R 19.5 ss. 2 LStR being referred to.
• In addition, the initially planned inclusion of travelling expenses of employees in the calculation of the benefits of a business event was also not pursued. They are, in accordance with the original plans, tax exempt only up to the limit of the tax-free allowance.

Further amendments of interest to businesses are:

• application of the principle of partial deduction in the case of shareholder loans to companies to be attributed to business assets (Sec. 3c ss. 2 Income Tax Act).
• changes for employers with regard to the employer’s contribution to the solvency margin (Sec. 19 ss. 1 sentence 1 Income Tax Act).
• tax exemption for employer payments for short-period childcare and services in connection with the care (Sec. 3 No. 34a Income Tax Act).
• tax exemption for investment supplements for venture capital in the case of business angels (Sec. 3 No. 71 Income Tax Act).
• introduction of a 5,000 euro limit above which a reversal of the tax liability occurs in respect of the supply of precious metals, non-precious metals, selen and cermets. In addition, notice is given that the tax authorities will extend the existing non-objection provision in the case of reverse charge procedure for metal supplies by a further six months up to 30 June 2015.
• authorisation of the BMF (Federal Ministry of Finance) to extend the tax liability for limited periods in cases of abuse (Sec. 13b ss. 10 VAT Act).
• monthly obligation to make VAT returns for shelf and shell companies (Sec. 18 ss. 2 VAT Act).
• amendments in cases of announcements to combat money laundering and the financing of terrorism (Sec. 31b Tax Code).
• extension of the identification numbers to permanent establishments.

On the contrary, the draft provides no changes to the following issues:

• Introduction of the correspondence principle for deduction of business expenses to avoid “untaxed income” and “double-dip structures” in case of hybrid financing.
• Restriction of consideration in case of contributions according to Sections 20, 21 and 24 Transformation Act to 10% of the assets contributed.
• Improvements to group exemption clauses in the context of the loss limitation rule according to Sec. 8c Corporation Tax Act for the cases in which the holding company participates.
• Introduction of tax liability on capital gains of portfolio shares.
• Extension of exceptions to Sec. 4f Income Tax Act to debt accession and satisfaction with regard to accounting for acquisition of hidden liabilities.
• Amendments to Real Estate Transfer Tax liability on an indirect change of partners in a partnership in Sec. 1 ss. 2a Real Estate Trasnfer Tax Act.
• Repeal of the tightened exit taxation in Sec. 50i Income Tax Act.
• Restriction of the option to partial income method in the case of 1% participations.

It was not possible in the view of the finance committee in the short time available to adequately discuss and review these proposals. The coalition parties intend therefore to deal with the proposals of the federal council in the first month of 2015. This also applies for amendments to provisions on exit tax in Sec. 50i Income Tax Act which were proposed by interest associations at the end of the legislative procedure.