Many companies provide their employees or third parties (e.g., business partners or customers) with non-cash benefits. Typical examples include gifts for personal occasions (e.g., a bouquet of flowers for a birthday), gift certificates, gifts in kind provided as part of an event or company function (e.g., a Christmas party), or hospitality provided for business or company-related reasons (e.g., a working dinner with a business partner). Although these are everyday occurrences, in practice they involve a significant amount of work related to tax law.

Current tax regulations create a significant burden and hinder digitization

The tax and social security regulations and record-keeping requirements for in-kind benefits are so complex that they cannot be translated into a digital process—or can only be done so with disproportionate effort. Sophisticated, IT-supported payroll solutions with the necessary interfaces are typically only feasible for a handful of large corporations and are unaffordable for the vast majority of small and medium-sized enterprises. In business practice, the taxation of non-cash benefits therefore often results in a significant amount of manual work. This stands in the way of automating payroll accounting and ties up significant human resources that, given the shortage of skilled workers, are often not even available. Furthermore, the fragmented nature of the applicable regulations leads to legal uncertainty and an increased risk of errors.

Comprehensive Simplification and Digitization

The tax treatment of non-cash benefits should therefore be fundamentally simplified and designed to be digitally compatible in close coordination with business practices. Companies should be given the option to opt for a fundamentally simplified and digitally trackable tax and social security accounting system for benefits in kind, hospitality, and events—including company events. The goal must be to ensure that every incoming invoice can lead to an accounting entry through an automated and digital process. Furthermore, for the reform proposal to realize its full simplification potential, synchronization with related areas of law (value-added tax, income taxes, and social security) is necessary.

Key Points of the BDI’s Reform Proposal

• Taxation of in-kind benefits, hospitality, and events—including company events—is based on fixed flat-rate tax rates.
• The taxation process is aligned with business processes and can be fully digitized, meaning that accounting can be handled entirely through software.
• The regulation should be designed as an option for companies. Companies may choose to use this option, but are not required to do so. Small businesses or companies with, for example, relatively simple internal processes may continue to apply the existing regulations.
• Under the flat-rate tax option, all special value thresholds that qualify for tax benefits are waived, e.g., the 50-euro exemption limit, the 60-euro “token of appreciation” limit, and the 110-euro exemption for company events.
• This significantly simplifies taxation and substantially reduces record-keeping requirements.
• Full taxation is ensured and is easier to verify. This reduces tax risks and legal disputes as well as administrative and monitoring costs.