1. Tax Evasion when Renting Private Apartments via Airbnb?
The world’s largest taxi company no longer has its own vehicles. The world’s largest hotel company no longer has its own houses.
It is a phenomenon of the so-called sharing economy that services are increasingly only brokered by large Internet companies such as Uber or Airbnb. The resources are used by private individuals who provide their own cars or apartments. This system is a welcome opportunity for many people to earn a few extra euros.
Many Airbnb landlords have not yet given any thought to the consequences of tax or even criminal tax law.
Whoever has not yet reported his income from private rentals to the tax office should immediately think about a so-called exemption from punishment tax voluntary disclosure.
2. Wherever Money Flows, the Treasury is Not Far
On Friday, May 4, 2018, the business magazine reported that German tax authorities are on the trail of the landlords of Airbnb, the world’s largest broker of private accommodation.
For many people, offering Airbnb accommodation has so far been just a harmless extra income and an opportunity to come into contact with people from all over the world. This will soon change. This is because taxes will be set at the latest when the full names and turnover of all private housing providers are available to the German tax authorities – provided they have not yet been declared.
In many cases, the initiation of criminal tax proceedings is also imminent.
In the following, possibilities for escaping from the tax trap will be shown.
3. Am I even taxable as a private Airbnb Landlord?
In most cases of Airbnb rentals, taxable income from rentals and leases is likely to be generated. The same applies to rentals via other portals, such as 9flats or Wimdu.
In the case of regular income and higher turnover, income from business operations may also be considered. In addition, all those who have so far neglected the tax issue are threatened with a VAT trap.
a. Income from Renting and Leasing
Already in 2008, the Federal Fiscal Court (BFH) decided for so-called “exhibition rooms” that their private rental is taxable as income within the meaning of § 21 EStG (income from rental and leasing) (cf. BFH, judgment of 04.03.2008, file number IX R 11/07): “If individual rooms of the otherwise owner-occupied apartment are rented to persons not belonging to the household for sole use, the income falls under § 21 EStG”. Scientific papers have also dealt with the topic (cf. Kußmaul/Kloster: Sharing Economy: Steuer der privaten Wohnraum(unter)vermietung im Zwielicht?, in DStR 2016, 1280 ff.).
This means that an Airbnb landlord must regularly attach to his personal income tax return the form with “Annex V” in which the corresponding income is entered. These principles also apply to the rental of private holiday apartments.
Note: Some holiday home owners just want their occasional rentals to be recognised as taxable income. This wish always arises when the total expenses for the property exceed the income – with the result that the costs for the holiday home can then be deducted from the income tax as income-related expenses. The tax office often does not recognize such attempts to deduct the tax on your own vacation home on Sylt via detours and speaks of mere “hobbyism”.
Income from renting and leasing does not necessarily presuppose that a locked apartment is rented. They are also incurred if, for example, only individual furnished rooms are offered which are connected to the own living area. Even if the landlord can enter the room himself at any time, taxes are due.
If, in addition to the rooms, the use of objects (e.g. furniture, kitchen appliances, etc.) or services (e.g. final cleaning service) are also offered, the entire package is generally taxable (differentiations result from VAT, see below).
b. Simplification and basic allowances: From 520 Euro per year generally tax liability
Exceptions to the tax liability only exist if certain amounts are not exceeded.
For reasons of simplification, tax offices regularly refrain from taking an interest in rental income with regard to income tax if this does not exceed 520 euros per year.
Note: This is regulated in the so-called Income Tax Guidelines (EStR 2012) issued by the Federal Ministry of Finance. There it says under R 21.2:
“If parts of a owner-occupied apartment, a owner-occupied single-family house or a total owner-occupied other house are temporarily rented out and the income from this does not exceed 520 euros in the assessment period, income may not be taxed for reasons of simplicity in agreement with the taxpayer.”
However, those who invoke this simplification rule cannot deduct any income-related expenses. This means that the expenses incurred by a typical Airbnb landlord (fees for Airbnb, pro rata rental costs for subletting, etc.) are also not taken into account for tax purposes.
Apart from this de minimis limit, taxes are, of course, only incurred if the so-called basic exemptions under income tax law have been exceeded overall. For example, if a student does not earn more than 8,820 euros in total (17,640 euros for married couples; the figures apply for 2017), no income tax is due anyway – unless this amount is only exceeded by the rental income.
c. Income-Related Expenses
If income from renting and leasing is available, all expenses that make the offer possible at Airbnb may be deducted from income tax as so-called income-related expenses.
If you are a tenant of an apartment, you can deduct the proportional rent and incidental costs. If you rent out your own apartment, you may deduct parts of the typical costs of a house owner (property tax, insurance, waste disposal, water supply, etc.).
The commissions paid to the agent, i.e. to Airbnb or Wimdu, are also deductible income-related expenses.
Under certain conditions, furniture may even be written off for tax purposes (cf., for example, the judgment of the Munich Financial Court of March 29, 2011, file number 13 K 2013/09).
d. Income from a trade or business?
If income from business operations is available, the income from renting and leasing (V&V income) is relinquished. This is referred to as “subsidiarity of types of surplus income” (cf. § 21 (3) EStG).
According to § 15 EStG, commercial income exists when an independent, sustainable economic activity is carried out with the intention of making a profit. If there is a commercial activity, the income from V&V (renting and leasing) is “requalified” into commercial income.
The circumstances of the individual case must be taken into account when the limit of commercial viability is exceeded in the case of the occasional letting of residential space. Evidence of this could be a professional organization, high sales or additional services such as breakfast.
Ultimately, it always depends on the overall impression and the answer to the question:
How close are you to a hotel?
Exceeding the trade limit does not only lead to a reclassification of the types of tax within the framework of income tax. In such a case, a trade tax return must also be submitted.
e. Value added tax: reduced tax rate and small business regulation
In most cases, the rental of private apartments is exempt from VAT (cf. § 4 No. 12 S. 1 UStG = VAT Act).
However, as is so often the case in German tax law, there is another exception to this principle. If the letting only takes place at short notice to changing tenants, there is nevertheless the obligation to pay value added tax to the state. Up to now, this exception has mainly concerned the rental of holiday apartments, but will gain economic importance in connection with the shared economy, i.e. Airbnb lettings.
Airbnb rentals are therefore generally subject to VAT!
However, the Value Added Tax Act provides – not surprisingly – for further exceptions. In deviation from the normal rate for value added tax (19 %), a reduced tax rate of 7 % applies to short-term rentals (cf. § 12 (2) No. 11 UstG). Here, however, it must be differentiated again according to whether the invoice was issued for the mere rental or for other services (so-called additional services, i.e. final cleaning, breakfast, etc.).
Fortunately, most Airbnb suppliers are unlikely to be affected by this issue. This is because the VAT issue can be avoided if the total rent received does not exceed 17,500 euros per year (cf. § 19 UStG – so-called small business regulation).
However, sales tax can become problematic if the tax office has not been informed of the sales up to now. It must also be stated on every invoice of a small business owner that the value added tax pursuant to § 19 of the Value Added Tax Act is not shown. If these formal requirements of the small business regulation are not met, a voluntary disclosure must also be considered with regard to value added tax (see 5. below).
f. Bed tax or Kulturförderabgabe (“cultural promotion levy”)
In addition to income tax, sales tax and trade tax, the so-called bed tax must also be taken into account in Airbnb cases.
Bed tax” refers to a cultural promotion tax levied by certain municipalities on the basis of their own statutory law (also known as city tax, accommodation tax or overnight stay tax).
Especially in popular tourist cities such as Berlin, Freiburg, Hamburg or Cologne, this special tax for hotel guests – and also for Airbnb guests – applies to private overnight stays.
4. Am I threatened with Criminal Tax Proceedings?
a. Tax Evasion, § 370 AO
Anyone who has not declared the above-mentioned taxes to the tax office or has not declared them in time shall be deemed to have committed the offence of tax evasion (§ 370 AO = Tax Code).
The excuse that one did not know that taxes are to be paid practically never lets the tax office apply. The threshold for proving intent is very low in criminal tax proceedings.
If criminal tax proceedings are initiated, severe penalties can be imposed, ranging from fines to fines or imprisonment on probation. In addition, the side effects of criminal proceedings should not be underestimated – which can often be much more drastic for civil servants or doctors, for example, than the punishment itself.
b. Admissibility of the Rental?
Incidentally, the question of whether the Airbnb rental was even permissible is irrelevant to criminal tax law.
In cities such as Frankfurt am Main or Berlin, Airbnb offers are a thorn in the fathers’ side. In Berlin, for example, it is forbidden to rent entire apartments to tourists (judgment of the Berlin Administrative Court of 6.6.2016 – VG 6 K 103.16). Only the renting of single rooms is allowed.
If in individual cases the letting was not permitted under the respective municipal statutes, this does not change the tax liability of the income (so-called neutrality of tax law). Prostitutes and professional killers also have to pay tax on their income. However, in the case of illegal rentals, additional fines may be imposed by municipal law. However, if a taxpayer provides information within the scope of a tax return, the prohibition under criminal tax law of § 393 (2) AO must be observed.
c. Never underestimate the tax office!
The probability that tax investigators will be targeted – and successful! – in the search for tax evaders among airbnbids is very high.
On the one hand, there have been “special task forces” in some cities for some time now that are looking closely at private housing offers all over the country.
The city of Berlin even offers a kind of whistleblower hotline on the website www.berlin.de/zweckentfremdung, under which citizens can denounce their neighbours when they observe paying guests coming in and going out.
At the latest, however, after the Federal Central Tax Office in Bonn sent a so-called group inquiry to Ireland in May 2018 in order to receive the complete documents on German Airbnb landlords, no one can be sure that they will not be discovered.
Group enquiries between two states are based on Art. 26 of the OECD Model Convention (OECD-MA). This model agreement is a recommendation of the Organisation for Economic Co-Operation and Development (OECD). Its contents are usually adopted in the bilateral conclusion of international treaties between two states.
The probability that the German tax authorities will soon have a list with the full names and addresses of the airbnbid providers, from which the income of recent years will result, is very high after all.
5. Is a voluntary self-disclosure for tax purposes exempt from punishment possible?
If the deadlines for a proper declaration have already elapsed or if an incorrect tax return has already been submitted, it is possible to make a tax voluntary declaration in accordance with § 371 AO.
The legal hurdles for such voluntary disclosures have been tightened in recent years. Nevertheless, it is still an efficient and suitable means to avoid criminal tax proceedings or at least to mitigate their consequences.
However, the risks of making mistakes in the subsequent tax return must not be underestimated. If a voluntary disclosure is incomplete or invalid for other formal reasons, its exemption from punishment no longer applies. Worse still, it may even lead to criminal tax proceedings being initiated. Uli Hoeneß sends his regards!
An example of possible mistakes that can be made when deciding to make subsequent tax declarations for income from Airbnb rentals:
A landlord fills in Annex V for the last few years, in which he has made substantial profits from the rental of private apartments. He submits these forms with the relevant figures to the tax office, without further explanation.
If the tax office comes in the example after own determinations to the result that in reality incomes from business concern existed, then the self-declaration is ineffective. This is because the taxpayer should have notified the full facts of the case, enabling the tax office to carry out a legal examination of commercial compliance without any further investigation. This did not happen in the example. Criminal proceedings will be instituted.
Another reason for the invalidity of a voluntary disclosure can be the so-called blocking reason for the detection of the offence. According to § 371 (2) No. 2 AO, impunity does not apply if the tax offence had already been discovered at the time of the correction.
The group inquiry of the Federal Republic of Germany in Ireland is unlikely to lead to the discovery of the crime as such. However, this cannot be ruled out at the latest when an answer is available. The case design is comparable to that in which data from Swiss accounts on a tax CD is already available to the tax office, but has not yet been evaluated in detail.
6. Conclusion
By acting swiftly, however, there is still the chance of removing one or two tax corpses in the cellar in good time. Ill-considered panic reactions are not appropriate.
However, this should not be done without the help of a lawyer specialising in criminal tax law.
