If a company sends an executive off to retirement with a big reception, the costs are not taxable wages if the event is a party for the employer and the employer also pays for the whole thing. The Federal Finance Court (BFH) made this clear in an important decision on the tax treatment of company parties.
What was it about?
The bone of contention was a reception that a municipal financial institution hosted and paid for at its corporate headquarters in 2019 for the chairman of the board before his retirement. According to court information, around 300 guests from politics, business, administration, the press as well as selected employees and family members of the outgoing manager took part. At the event organized by the human resources department, the successor at the top of the bank was also introduced.
After an external wage tax audit for the years 2017 to 2020, the responsible tax office came to the conclusion that the costs were “attributable to wages” to the departed CEO. The tax office held the financial institution liable for the resulting income tax. This implies that the total costs for the celebration must have been over 33,000 euros.
The authority referred to a principle of the wage tax directive (R 19.3 para. 2 no. 3 LStR (aF)), according to which usual benefits in kind from the employer on the occasion of the departure of an employee constitute taxable wages if the employer’s expenses exceed 110 euros per guest.
Tax court rejects authority’s legal opinion
The bank sued against this and was thus partially proven right before the Lower Saxony Finance Court: According to the ruling, in the case of farewell parties paid for by the company, contrary to the income tax guidelines cited by the tax office, “even if the exemption limit of 110 euros is exceeded, it must be decided, taking into account the circumstances of the individual case, whether it is a party for the employer (company event) or a private party for the employee.”
Therefore, taxable wages were incurred here “only to the extent that” the proportionate costs for the departed manager and his relatives were affected.
Federal Finance Court: These criteria must be present
When the tax office then filed an appeal, the BFH not only rejected it, but also went beyond the first instance decision. If the company finances the event in its entirety, wages are only due “if it is a private celebration for the employee, but not if the guests are entertained on the occasion of a party hosted by the employer,” according to the Senate.
However, it must be taken into account “who acts as host, who determines the guest list, who is invited, where the celebration is taking place and what character the celebration has (business or private)”. Since both the organization and the compilation of the guest list and the invitations were carried out by the bank’s HR department in this case, this is undoubtedly not a private celebration. This was especially true since the institute also used this opportunity to introduce its new boss to a broader public.
Against this background, according to the BFH’s further justification, the proportionate costs incurred by the CEO and his family could not constitute “wages”. After all, the participation of relatives in such festivities is “socially customary”.
Practical conclusion
According to the BFH, the decision “makes it clear that companies can cover the costs of saying goodbye to their departing employees without any wage tax disadvantages, as long as the event is designed as a company celebration.”
Info
BFH, judgment of November 19, 2025, Ref. VI R 18/24
Lower court: FG Lower Saxony, judgment of April 23, 2024, case number 8 K 66/22
This applies for tax purposes to company celebrations
Tax aspects must also be taken into account at company events such as summer parties, anniversaries, department trips or Christmas parties. The rule of thumb here is that, in accordance with Section 19 Paragraph 1 Sentence 1 No. 1a EStG, employer contributions up to a threshold of 110 euros per celebration remain exempt from wage tax and are therefore not viewed as wages. However, if this limit is exceeded, only the amount exceeding this limit is subject to tax. However, the prerequisite is that the respective event must be open to all members of the company or part of the company.
HR should also pay attention to a thorough calculation, because the maximum sum of 110 euros per head does not just include drinks and food. Any costs for event rooms and supporting programs (DJ, external presenter or location rental) must also be distributed among the participants.
It is also important to calculate a realistic rejection rate. According to an earlier decision by the Federal Finance Court, the employer’s expenses (total costs) must be “divided equally between the participants present at the company event” (BFH, judgment of April 29, 2021, ref. VI R 31/18).
Frank Strankmann is an editor and writes offline and online. His focus is on the topics of labor law, co-determination and regulation. He is also responsible for other projects for media brands from FAZ Business Media GmbH.
