Reach obliges: Tax pitfalls in influencer marketing

Non-cash benefits such as test products, trips and event invitations that influencers receive in exchange for advertising services are generally not tax-free gifts, but benefits subject to income tax. Companies should check whether the product mailings fall within the scope of the flat-rate taxation of 30 per cent by the client in accordance with Section 37b EStG. A standardised application for all non-cash benefits in the company is required here. The value of the goods and the extent to which influencers provide advertising services for companies can also be decisive for the tax treatment. For example, the application of Section 37b (1) EStG is only possible if the individual non-cash benefit has a maximum value of EUR 10,000. In the case of several benefits with a lower value, the total amount per influencer may not exceed EUR 10,000 per year.

Promotional gifts and other benefits can be fully deductible business expenses. Companies should therefore know what influencers have done with the offer. Was the product or service actually advertised? Was the item tested and then kept or returned unchanged? All of this can have an impact on tax treatment and should be documented accordingly.

If influencers are also employees of the company, employer obligations, such as the obligation to withhold income tax and social security contributions, may be triggered. It should therefore be precisely defined which payments are income from self-employment as an influencer and which are wages.

If German companies work with influencers who are based abroad, withholding tax obligations may arise in accordance with Section 50a EStG.

The provision of promotional gifts, product samples or test products to influencers may not be taxable, it may take place as part of a free transfer of value and must be taxed accordingly, or it may constitute a supply for consideration as part of an exchange of services. It must be taken into account that the consideration can also be provided in the form of another service, such as an advertising service. In the next step, this initial categorisation has an impact on the determination of the correct taxable amount and the correct invoicing and taxation. Detailed knowledge of the contractual relationships and the actual structure is crucial in order to be able to make a correct VAT classification - not only for the company, but also for the contractual partners. The following questions, among others, must be answered in order to record the facts for VAT categorisation:

• Which parties are involved in the service relationship (companies, agencies, influencers) and what services are provided?
• Are other benefits granted in addition to monetary payments (e.g. products or services)?
• Are the services provided electronically?
• Are the services provided from Germany or abroad?
• What is the invoicing process (e.g. regular invoicing or VAT credit note procedure)?

In order to be able to prove the VAT treatment carried out in the context of a tax audit, it is advisable to document the business relationships and advertising activities accordingly.

It is questionable whether influencers perform an activity that typically leads to an obligation to pay contributions under the Artists' Social Insurance Act (KSVG). The Künstlersozialkasse expressly includes influencers in the list of artistic activities.

However, categorisation as an artistic activity does not necessarily lead to an obligation to pay contributions. There are influencers who also owe their popularity to their work as actors or musicians. In these cases, it must be clarified whether the payments to the influencer are fully attributable to the artistic or journalistic performance. Or whether they are paid - at least in part - for the exploitation of naming rights or for the wide reach that can be generated via influencers. [SN4] In these cases, the decisive factor will be whether influencers themselves are involved in creative activities or whether their names are only used for advertising.