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Tax & Legal News October 13, 2011 8 enables him to reduce his costs by taking short cuts, clubbing together with colleagues to go to work in the same car, and other measures not immediately open to an employee sent on an occasional trip. The Supreme Tax Court has previously held that an employee’s regular place of work must be central to his functions and must be somewhere to which he regularly returns in the course of his duties. It is therefore possible for an employee to have more than one regular place of work with the same employer, such as in the case of a bus driver operating from various depots, or an ambulance crew member on shift work between various stations. The court has now reconsidered its position in two cases just published and redefined the regular place of work as that place forming the centre of an employee’s functions. An employee may therefore be without a regular place of work at all (all unreimbursed travel is then deductible as business expense), but can never have more than one (there can no longer be unrecognised expense of travelling between two regular places of work). In the view of the court, this new definition fits better the explanation for the distinction between the two categories of deduction, as a person with more than one workplace is unlikely to be able to regularly travel to work in the same car as a colleague. The first case concerned the managing director of a GmbH. He lived some distance away from GmbH’s main office; however, he had it rent a cellar for the company’s computer in the same building as his home. He regularly visited the computer and claimed the cellar to be his regular place of work. Journeys between his home and the GmbH’s main premises were therefore business trips. The Supreme Tax Court referred the case back for further investigation of the director’s working style as a basis for finding his one and only regular place of work. However, it also made the point that the regular place of work had to be a business establishment of the GmbH, and that the GmbH could not have a business establishment in an employee’s home. The director would therefore have to leave home in order to get to his regular place of work. If he were able to get to the cellar through the garden, for example, he would not leave home to get there and it could not qualify as a business establishment of his employer or as his regular place of work. The second case was brought by a district manageress of a supermarket chain. She was directly responsible for 15 stores, in each of which she had an office, and each of which she visited regularly. Her regular place of work was the office she mainly used, i.e. the one at the centre of her functions. If no single office was central in this manor – that is, she communicated and performed her admin duties from where ever she happened to be at the time – she would have no regular place of work and all travel for her employer would rank as being on business. Supreme Tax Court judgments VI R 55/10 (managing director) and VI R 36/10 (supermarket manageress) of June 6, 2011 published on August 24 Second rental cost on move to new job deductible as business expense A married couple were both employed. The husband took up a new job in another town, where he rented a flat suitable for the family. His wife and child joined him in the new home some two and a half months later. He claimed a full deduction of the rent cost of the new flat until the end of the month of the wife’s move. The tax office sought to reduce the deduction to the rent for the first 60 m2 of the second flat, claiming that the tax relief should be governed by the rules on double-households maintained for business reasons. The Supreme Tax Court has now held that the double-household relief rules are irrelevant to the present case. The family had moved to a new town because of the husband’s new job. Additional rental costs necessarily incurred were expenses of earning employment income and deductible in full. The deduction was to be for the cost of the new flat until the wife and child moved in and for that of the old one thereafter. The total was, however, to be limited to the contractual notice period to quit the old flat. The court also made the point that the statutory provisions on moving costs for civil servants were not directly relevant to the present case of deduction of a business, as opposed to a personal, expense. Supreme Tax Court judgment VI R 2/11 of July 13, 2011 published on September 28 Supplementary amount on change to tonnage tax is trading income Germany operates a tonnage tax system for ships sailing in international waters. The system is optional, but the option may only be exercised when the ship is commissioned or at ten-year intervals thereafter. Changeover-abuse is discouraged by establishing the excess of book value over the market value of the assets at the time of changeover to be carried forward as a “supplementary amount” until the entitlement to the tonnage tax
Tax & Legal News October 13, 2011 9 regime is lost. This occurs on disposal of the ship or on its withdrawal from international routes, on the cessation of operations, or – in proportion – on the retirement of a partner from a shipping partnership. Once one of these events occurs, the supplementary amount is added to the current trading income of the taxpayer. A former member of a shipping partnership has just lost a case before the Supreme Tax Court on his claim that the supplementary amount falling to taxation on his retirement be seen as a (tax privileged) capital gain. He based his argument on the contention that the tax liability was triggered by his retirement; therefore it was directly connected with the disposal of his partnership share. The Supreme Tax Court, however, chose to follow its previous case law in holding that the income in question was trading income falling to normal scale rate taxation. It made the point that the supplementary amount had been established the time of the change in tax status of the partnership. It was thus linked thereto and retained its status of trading income, not least because the trading losses leading to the build-up of intangibles had already been deducted by the taxpayer as such. The amount was based on the historical fact of the hidden reserves at the time of the changeover; the deferral of the tax charge did not change the nature of the income. Supreme Tax Court judgment IV R 42/10 of July 9, 2011, published on September 7 Immediately diluted share purchase is purchase of reduced holding A future director acquired a 12.6% holding in a GmbH. A shareholders' meeting was held immediately afterwards to resolve a capital increase to be taken up in full by other shareholders. His relative holding thus fell to 0.02%. Rather more than a year later, he sold his share, realising a not inconsiderable capital gain. Under the then law, capital gains on the sale of shares held privately for more than one year were tax-free unless the recipient had held at least 10% of the issued share capital of the company at any time during the previous five years. The tax office saw this exception as fulfilled with the purchase of the 12.6% share and assessed income tax on the gain in the year of sale. The shareholder argued that he had acquired his investment for the specific and agreed purpose of voting in favour of the capital increase. Since this increase necessarily led to the immediate dilution of his shareholding, he had, effectively, never held more than the diluted proportion of 0.2%. This, though, was well below the !0% limit for taxing the capital gain. The Supreme Tax Court has now sided with the taxpayer. The share purchase and capital increase resolutions were passed in one sitting in the lawyer's offices and were parts of the same transaction. That the one resolution necessarily preceded the other in law, did not mean that the two could not be regarded as a single act for tax purposes. Taxation was based on the substance of transactions rather than on their legal form, and the substance here was that the taxpayer at no time effectively disposed over a shareholding of more than 0.2%. In the meantime, capital gains taxation has been revised and gains on the sale of any shares acquired in 2009 or later are always taxable, regardless of the circumstances of the investment. The case therefore has no meaning as a planning guide for the future, although it is of importance in drawing tax conclusions from interlinked transactions, establishing, as it does, yet again that interlinked transactions should be taken as a single event, if such is the substance of the occurrence. Supreme Tax Court judgment IX R 32/10 of May 25, 2011 published on October 5 Reverse charge VAT entitles foreign business to full input tax refund An Austrian business performed services in Germany subject to VAT by reverse charge. During the year under review it purchased certain building services in Germany from a foreign supplier. This made it liable to file a VAT return in order to account for its reverse charge obligation on the services purchased. It did so after year end and claimed a deduction for its input tax borne throughout the year. The tax office refused this claim insofar as it related to periods prior to the reverse charge obligation, saying that the Austrian business was then without German taxable turnover and could have, and should have, filed a refund claim as a foreign business. The Supreme Tax Court has now sided with the taxpayer. A VAT return is an annual return and thus encompasses all relevant transactions of the year. On the other hand, the business was unaware of its filing requirement before its purchase of its reverse charge input. At that time, it could have availed itself of the foreign business refund claim procedure for EU (and for many foreign) businesses. That procedure sets the refund claim
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