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TAX & BUSINESS
Flat-rate business expenses for managing directors
Since managing directors usually have no significant business expenses, they can apply the flat-rate business expense allowance of 6% of net turnover to reduce their taxable profit. At the same time, social security contributions can be claimed as an additional deductible business expense.
In a proceeding before the Federal Fiscal Court (Bundesfinanzgericht, BFG) a substantially involved GmbH managing director, in addition to his managing‑director remuneration, received a benefit in kind for a company‑provided apartment and a reimbursement equal to the social security contributions paid by the GmbH on his behalf. The managing director counted this reimbursement as income, which accordingly increased the flat-rate business expense allowance of 6%. In the tax office’s view, however, the social security contributions paid by the GmbH would merely be pass‑through items and therefore should not be included in the calculation base of the allowance.
Finding of the BFG
The BFG confirmed in the appealed procedural review that the social security contributions paid directly by the GmbH to the social security authority are to be included in the calculation base for the flat-rate business expense allowance, thereby increasing the 6% flat‑rated business expenses. These social security contributions are, for the managing director, in addition to the flat‑rated business expenses, (additional) business expenses. As the Administrative Court (Verwaltungsgerichtshof, VwGH) has already stated, payments made in the name of and on the account of the taxpayer are to be attributed to that taxpayer and taken into account, provided they have the character of advertising costs or business expenses.
The payments by the GmbH therefore constitute a receipt of taxable income for the managing director and at the same time a discharge of business expenses, which must be considered when determining the income‑tax assessment base.
Conclusion
If a GmbH pays the compulsory social‑security contributions for a managing director in addition to his salary, the contributions do not represent pass‑through items for the managing director. Consequently, the social‑security contributions must be included in the calculation base for the flat‑rate business expense allowance. At the same time, the managing director can claim these social‑security contributions as additional deductible business expenses.
Finding of the BFG
The BFG confirmed in the appealed procedural review that the social security contributions paid directly by the GmbH to the social security authority are to be included in the calculation base for the flat-rate business expense allowance, thereby increasing the 6% flat‑rated business expenses. These social security contributions are, for the managing director, in addition to the flat‑rated business expenses, (additional) business expenses. As the Administrative Court (Verwaltungsgerichtshof, VwGH) has already stated, payments made in the name of and on the account of the taxpayer are to be attributed to that taxpayer and taken into account, provided they have the character of advertising costs or business expenses.
The payments by the GmbH therefore constitute a receipt of taxable income for the managing director and at the same time a discharge of business expenses, which must be considered when determining the income‑tax assessment base.
Conclusion
If a GmbH pays the compulsory social‑security contributions for a managing director in addition to his salary, the contributions do not represent pass‑through items for the managing director. Consequently, the social‑security contributions must be included in the calculation base for the flat‑rate business expense allowance. At the same time, the managing director can claim these social‑security contributions as additional deductible business expenses.