Flat-rate expense allowances without tax authority approval are a risk
A company in Zug paid its field staff 20 per cent in flat-rate expenses based on turnover for three years. The tax administration of the canton of Zug accepted only half of the expenses as business-related expenses. The remaining amount of CHF 234’000 was qualified as taxable profit of the insurance broker.
The company took its objections all the way to the Federal Supreme Court, which ruled as follows: Only if flat-rate expenses are justified on business grounds can they be deducted from the taxable profit. Expenses that are not justified on business grounds are added to the company’s profit. Furthermore, the Federal Supreme Court distinguishes between employees who are close to the company and those who are not. Related employees are shareholders of the company and persons related to them. In the case of related employees, the company must provide concrete evidence that the lump-sum expenses are offset by an individual service. The easiest way to do this is to waive the lump-sum expenses and to provide detailed documentation of the work performance and the remuneration of the individual assignments on a case-by-case basis. (Source: BGE 2C_316/2020 of 20.10.20)