Many companies provide non-cash benefits to employees or third parties, such as business partners or customers. Typical examples include small gifts for personal occasions, such as a bouquet of flowers for a birthday, vouchers, non-cash benefits provided in connection with an event or company event, such as a Christmas party, and hospitality provided for business or operational reasons, such as a working lunch with a business partner. Although these are routine transactions, they involve considerable tax-related administrative work in practice.

Current Tax Rules Create a Significant Burden and Hinder Digitization

The tax and social security rules and record-keeping requirements for non-cash benefits are so complex that they cannot be incorporated into digital processes or can be incorporated only at disproportionate cost. Sophisticated IT-based payroll solutions with the necessary interfaces are generally viable for only a small number of large companies and are not affordable for the vast majority of small and medium-sized enterprises. In practice, the taxation of non-cash benefits therefore often entails a considerable amount of manual work. This impedes the automation of payroll processing and ties up substantial staff resources that, given the shortage of skilled workers, are often simply unavailable. In addition, the fragmented nature of the applicable rules creates legal uncertainty and increases the risk of errors.

Comprehensive Simplification and Digitization

The tax treatment of non-cash benefits should therefore be fundamentally simplified and designed, in close consultation with businesses, to support fully digital processing. Companies should be given the option of using a fundamentally simplified tax and social security accounting system that digitally records non-cash benefits, hospitality and events, including company events. The objective must be to ensure that every incoming invoice can automatically generate an accounting entry in a fully digital process. To unlock the full simplification potential of the reform proposal, the relevant rules must also be aligned with related areas of law, including value-added tax, taxes on income and social security law.

Key Elements of the BDI’s Reform Proposal

• Non-cash benefits, hospitality and events, including company events, are taxed at fixed flat rates.
• The taxation process is aligned with business processes and can be fully digitized, allowing the entire accounting process to be handled automatically by software.
• The scheme should be optional for companies. Companies may choose to use it but would not be required to do so. Small businesses and companies with relatively simple internal processes, for example, could continue to apply the existing rules.
• Under the flat-rate tax option, all preferential value thresholds would be abolished, including the EUR 50 exemption threshold, the EUR 60 threshold for small gifts and the EUR 110 tax-free allowance for company events.
• This would significantly simplify taxation and substantially reduce record-keeping requirements.
• Full taxation would be ensured and would be easier to verify. This would reduce tax risks and legal disputes, as well as administrative and compliance costs.