Negative non-self-employed income
July 4, 2011 | 35,00 EUR | answered by StB Manuela Ponikwar
Dear Sir or Madam,
I have a case with one of my clients where the tax authorities have assessed very high income from employment for the years 2007 and 2008, even though it is still disputed, but has been paid for the time being. For the tax year 2009, no other income was generated apart from income from capital gains, however there were various expenses that were claimed as business expenses for the income from employment and carried forward as a loss in 2009. These and other expenses (see attachments) have been rejected by the tax authorities. We have lodged a precautionary appeal against the income tax assessment and must submit the grounds for appeal by July 27, 2011.
We have attached all relevant documents for your reference.
Are there any possible ways to justify the appeal or are there any relevant rulings already in place?
We appreciate your assistance in advance.
Sincerely,
Dear inquirer,
thank you for your inquiry, which I would like to answer in the context of an initial consultation taking into account the appropriate fee as follows:
As far as I can see from the attached tax assessment notice, only the advertising costs in the income from employment were not recognized. Other declared costs, as far as I can see, were not removed.
Unfortunately, you have not provided details on the type of advertising costs claimed (which will be very relevant here), so I can only address your question in general.
Advertising costs are expenses for the acquisition, security, and maintenance of income according to § 9 para. 1 sentence 1 of the Income Tax Act, i.e. they must be directly related to income (the so-called causal relationship or the question of the "triggering moment" for the expenses).
In principle, there should also be the possibility for subsequent advertising costs. In the case of an unbalanced loss in the total amount of income, a loss carry-back to the previous year would be possible.
However, expenses that arise only after the cessation of the activity aimed at generating income are often not considered advertising costs, even if they are economically related to the previous income generation according to existing case law. Specifically, see the Federal Fiscal Court (BFH) judgment of 05.10.2004 - VIII R 64/02 (NV).
In this judgment, the BFH confirmed the general legal principle that in the case of surplus income, there is generally no possibility for a subsequent deduction of advertising costs after the source of income has been eliminated. Regardless of the cause of the expenses, the necessary economic connection with the type of income is lost due to the cessation of income generation. This is also the argumentation of your tax office.
However, these and other disputes mainly refer to subsequent financing costs.
I have found two judgments where subsequent advertising costs in employment were accepted:
1) FG Munich court decision of 06.02.2007 - 9 K 4418/04: subsequent advertising costs for unreimbursed project costs for (obliged) completion of a project after entering retirement
2) BFH judgment of 22.06.2006 - VI R 5/03 (published on 13.09.2006): contractual penalty for failure to continue the activity = subsequent advertising costs
In your appeal justification, argue the direct economic connection of the costs with the previous year's income (as detailed as possible) and, where applicable, refer to the above judgments.
I hope this helps.
Sincerely,
Manuela Ponikwar
Tax consultant
www.ponikwar.de
P.S.
Additionally, I would like to add the following:
You mention a client but use 'we' in the appeal process. Please note that tax assistance under the Tax Advisory Act is reserved for certain professional groups. If you provide tax assistance without belonging to one of these professional groups, you may receive a warning and a fine from the competent tax advisory chamber.
