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Input tax deduction for reimbursement of moving expenses to employees

Moving expenses and advertising costs

With regard to income and wage tax, it is clearly regulated to what extent the employee may deduct expenses for a job-related move as income-related expenses or the employer may reimburse corresponding expenses tax-free. However, the VAT treatment of reimbursement or assumption of relocation costs by the employer is unclear.

It is conceivable that the assumption of relocation costs by the employer is assessed as an exchange of services, whereby the employee’s work performance is to be regarded as consideration; in this case, the assumption of relocation costs by the employer would be subject to VAT. This would correspond to the sales tax treatment of non-cash benefits to the employee.

Reimbursement of moving expenses – Requirements

However, the Hessian Fiscal Court takes a different view. Accordingly, the assumption of relocation costs is not directly related to the employee’s work performance, but is only intended to create the conditions for the work performance to be performed.

Since the entrepreneurial interest is thus in the foreground compared to the employee’s benefit, i.e. the relocation costs are ultimately provided for the company, input tax may be deducted from the relocation costs if the other requirements for input tax deduction are met. In particular, the invoices must be made out to the employer – and not to the employee.

Since an appeal has been filed by the tax office, the decision of the Federal Fiscal Court remains to be seen.