BFH strengthens municipal supervisory boards: lump-sum allowance for voluntary work possible

Until now, the taxation of municipal supervisory board members has primarily focused on the question of entrepreneurial status within the meaning of VAT law. In its decision of May 8, 2024 (case no. VIII R 9/21), the BFH addressed the income tax treatment and clarified that municipal supervisory board members can generally fall under the tax exemption of Art. 3 no. 26a EstG.

Decision of the court

According to the first variant of Art. 3 No. 26a EStG, income from secondary employment in the service or on behalf of a legal entity under public law (jPöR) is tax-free up to EUR 840 per year.

Pursuant to the previous administrative opinion (see German Federal Ministry of Finance (“BMF”) of November 21, 2014), it is necessary that the activity is performed for the “promotion of charitable purposes” of the corporation by which the service provider is employed or engaged. It is irrelevant if the taxpayer's activity falls within the non-profit or sovereign sphere of the legal entity under public law. 

Deviating from this view, the BFH has ruled that the tax exemption of activities in the service or on behalf of a legal entity under public law does not include any further requirements and, in particular, does not have to promote non-profit, charitable or ecclesiastical purposes.

Therefore, the only requirement for tax exemption – in addition to the secondary occupation – is that the specific activity is carried out in the service or on behalf of the legal entity under public law. Even if the remuneration or expense allowance is paid from the company's assets, tax exemption remains possible, provided the aforementioned conditions are met.

Consequences for practice

The decision allows municipal supervisory boards to exempt supervisory board remuneration from tax.

Due to the restriction of Art. 3 No. 26a EStG to charitable purposes, the application of the lump-sum allowance for voluntary work in the service or on behalf of a legal entity under public law was limited to a few cases in practice.

Although the decision relates to the exercise of the Supervisory Board mandate as part of a self-employed activity, it may also apply to employees seconded by the legal entity under public law, provided this additional activity is performed in the service or on behalf of the legal entity under public law as part of a secondary occupation. 

However, the type of tasks performed by the company is not relevant for tax exemption.

The lower court had limited the application of Art. 3 no. 26a EStG only to cases in which the company performs services for the public and thus excluded it for participations in other cases (e.g., automotive group).

The BFH expressly did not follow this restriction.

In addition to supervisory board members in companies, the decision is also likely to have significance for honorary employees of special-purpose associations who receive an expense allowance for their work. In this case, cumulation with the tax exemption in accordance with Art. 3 no. 12 sentence 2 EStG is now also possible, which means that a higher tax-free amount can be achieved.

Conclusion

The BFH significantly expands the application of the lump-sum allowance for voluntary work in the service of legal entities under public law.

In many cases, the application of the exemption provision depends on the specific structure of the appointment to the Supervisory Board and also the employment contract provisions with municipal employees.

It remains to be seen whether and how the tax authorities will react. In our view, tax coordination is recommended until the ruling is implemented.