No employer status of a foreign permanent establishment

Under national (wage) tax law, a domestic employer is obliged to withhold and declare wage tax with regard to the remuneration paid on domestic business trips by its employees based abroad. Against this background, the German Federal Fiscal Court (BFH) had to clarify in its decision of December 12, 2024 (case no. VI R 25/22) whether the employer based in Germany is obliged to withhold and declare the wage tax due on the remuneration of its employees from foreign permanent establishments for business trips to Germany (so-called domestic business trips).

In the case in dispute, a European Company (SE) based in Germany maintained numerous permanent establishments in other European and non-European countries. The employees working there and also residing in the respective country of employment were employed by the SE under civil law. They travelled to the parent company in Germany at irregular intervals for short-term business trips (e.g. training courses, seminars, project work). These domestic business trips were carried out in the interests of the respective foreign permanent establishment, which bore both the full remuneration for the work and the travelling expenses incurred. The German parent company of the SE did not reimburse these costs. The tax office deducted income tax from the wages of the employees of the SE's foreign permanent establishments for the domestic business trips due to its domestic employer status. The tax court and BFH followed the opinion of the tax office.

According to established BFH case law, not only an employer within the meaning of treaty law - in contrast to national (wage) tax law - may be the employer under civil law, but also another natural or legal person who bears the economic burden of the remuneration for the non-self-employed work performed. However, the foreign permanent establishments are, for example, not (legal) persons in the sense of treaty law due to the lack of the ability to be resident in one of the two contracting states and therefore cannot be employers under treaty law. Irrespective of this, in the case in dispute there was no (other) person apart from the SE that was economically responsible for the wages of the employees posted to Germany. The SE was therefore not permitted to refrain from declaring the wage tax in accordance with the relevant provisions of treaty law.

In addition, the usual wording in treaty law, according to which the remuneration must be borne by a permanent establishment or deducted from its profits which the employer has in the other state, makes it clear that a distinction must be made between the terms ‘employer’ and ‘permanent establishment’. This interpretation of the term ‘employer’ under tax treaty law does not violate Union law or constitutionality.