German Tax Updates in May 2024

1.  Earn-out Payments are not Taxable Until Received 

2.  Reversal of Hidden Reserves: Profit Surcharge of 6% is Legal 

3.  Caution Against Occupational Hazards for Short-Term Employees 

4.  Basic Information of the Electronic Logbook – Changes Must be Excluded or At Least Documented 

5.  Job Search: Which Application Costs are Tax Deductible?

  1. Earn-out Payments are not Taxable Until Received

 If shares in a partnership are sold, in addition to the payment of consideration at closing, additional consideration may be paid within a certain period of time from the time of closing, depending on the degree to which the target company’s performance indicators and other targets are achieved. According to a new ruling by the Federal Fiscal Court, these so called “Earn-Out Payments” are taxed only at the seller when they are actually received. They may therefore not be included in the profit at the time of sale even retrospectively (no retroactive effect). 

 According to the ruling, profit and sales dependent purchase price receivables may only be recognized upon realization, as the seller only realizes them at the time of inflow. These are contingent purchase price claims for which it is not yet clear whether, and in  

what amount will they arise. In the opinion of the court, these uncertainties justify excluding such payments from the calculation of the capital gain as on the reporting date. 

Please Note: 

Earn-out payments must be taxed as subsequent business income when they are received. This point in time may only occur several years after the sale of the shares.

  1. Reversal of Hidden Reserves: Profit Surcharge of 6% is Legal 

The Baden-Württemberg Fiscal Court is another fiscal court that has ruled that the amount of the surcharge of 6% for each full year, in which a reserve pursuant to Section 6b of the German Income Tax Act (EStG) existed, and is reversed due to the acquisition of a replacement investment is not unconstitutional, even in times of low interest rates. 


When business assets are sold, hidden reserves are often uncovered from the difference between the selling price and the acquisition price or book value. For certain fixed assets (e.g. land), this profit does not have to be taxed immediately in the year of  

sale, but can be transferred to a reserve, which can then be transferred to the acquisition costs of a new purchase within a certain period (depending on the type of asset) (Section 6b EStG). If the reserve is released to profit without being transferred to a reinvestment object, a profit surcharge of 6% per year is levied for each full financial year in which the reserve existed (Section 6b (7) EStG), irrespective of whether the reserve is released voluntarily or compulsorily due to a lack of investment.

Please Note:

In 2021, the Federal Constitutional Court ruled that the interest rate of 6 % for back tax  

payments (and tax refunds) for assessment periods from 2019 onwards was too high and therefore unconstitutional. However, several courts have ruled in between that this interest decision is not transferable to other types of interest (not to deferral, evasion and suspension interest.)

  1. Caution Against Occupational Hazards for Short-Term Employees

A fruit grower swapped year-round harvest workers between their Apple and Strawberry farms and billed them as short-term employees on the Strawberry farm who were exempt from social security contributions. This “savings model” was deemed unlawful by the social security audit and has now been ruled in favor of by the Lower Saxony- Bremen Regional Social Court. 


There are two requirements for short-term employment to be exempt from social   security contributions: The employment must be temporary, it must not be carried out for more than three months or 70 working days in the course of a calendar year, and it must not be carried out on a professional basis (Section 8 (1) no. 2 of the German Social Security Code IV). Several temporary jobs must be added together for this assessment. An occupation is deemed to exist if the employment or service is not only of minor economic importance for the employee. This repeatedly leads to discussions with the social insurance providers. In a recent case, a fruit grower failed with a supposedly clever savings model.

Facts of the Case:

A fruit grower employed harvest helpers for the whole year on their Apple farm with a fixed monthly salary based on an annual working time account and subject to social insurance contributions. They deployed the harvest helpers in the months of May to July on a Strawberry farm in which they had a stake. The harvest helpers were released from their duties at the Apple farm accordingly, while the remuneration at the Strawberry farm remained as short-term employment without social security contributions. The German Pension Insurance’s social insurance audit rejected the short-term nature of the work because the harvest helpers were working on a professional basis and therefore, the second requirement for exemption from social insurance was not met. Ultimately, the fruit grower had to pay social security contributions of around EUR 58,000. 

The court emphasized that the fruit grower’s “savings model” was specifically designed to avoid a considerable part of their earned income being subject to social security contributions by means of alternating operational agreements and long-term planned measures.

  1. Basic Information of the Electronic Logbook – Changes Must be Excluded or At Least Documented

Anyone who uses a company vehicle for private purposes can determine the taxable benefit of use by keeping a logbook and thus avoid taxation using the flat-rate 1%   method. Keeping a logbook is often more favorable than the 1% method if few private journeys are made, a low total mileage is to be expected, the vehicle has a high gross list price, or it has already been written off. However, the determination of benefits according to the logbook method is only recognized by the tax office if the logbook is correct. To this end, it must be kept promptly and in a closed form (e.g. as a bound book) so that subsequent changes are impossible. In the meantime, logbooks are   increasingly being kept in electronic form (e.g. as smartphones app or software). Special connectors with GPS trackers and SIM cards are sometimes used, which are connected to the vehicle interface so that journeys are automatically recorded.

In a new ruling, the Federal Fiscal Court (BFH) has confirmed that a file created using a computer program only meets the requirements of a proper logbook (closed form) if subsequent changes to the data entered are either technically impossible or are at least documented. According to the BFH ruling, it is not sufficient if subsequent changes can only be disclosed by a system administrator. The electronic logbook must therefore provide direct insight into the changes made.

Please Note

If an analog or electric logbook is rejected, this often has expensive consequences for the driver, as the usage advantage is then calculated according to the 1% method.

  1. Job Search: Which Application Costs are Tax Deductible?

Anyone looking for a job often has to invest not only a lot of time, but also a lot of money. The good news is that job application costs are tax deductible. All costs incurred in the search for a job (and thus serve the future acquisition of income) can basically be   claimed as income-related expenses. Deductible application costs include expenses for application forms, specialist literature, application seminars, travel to job interviews, necessary accommodation and catering costs, envelopes, postage and certifications. However, if costs are reimbursed by the (potential) employer, this reimbursement reduces the deduction of income related expenses. The same applies to a subsidy paid by the Federal Employment Agency towards application costs.

Please Note: 

For employees, application costs only have a tax effect if they (together with all other income related expenses) exceed the currently applicable flat-rate income related expense allowance of €1,230. If you are not (yet) in an employment relationship, you can also deduct lower income related expenses. Application costs are deductible regardless of whether the expenses are incurred during an existing employment relationship or study program or only afterwards. If the applicant does not earn any income at the time of the application, their application costs constitute so-called anticipated income-related expenses. It is also irrelevant for the deduction of application costs whether the respective application ultimately led to success.

Disclaimer: All views expressed in this article are solely for informational purposes and should not be construed as legal advice. This information is for reference only and is bound to change in case of any amendments or changes to applicable laws. We do not assume any responsibility or liability for any errors or omissions in the content of this article, and do not make any warranties about the completeness, reliability and accuracy of the information expressed in this article.

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