What does a freelance fashion designer do

The determination of the status of an artist by the tax authorities

Photo, graphic, fashion, product or textile designers usually work as freelancers. Unfortunately, this fact is repeatedly questioned by the tax authorities.

It can happen that a designer is suddenly charged with trade tax and his income is recorded in income tax as income from business operations (Section 15 EStG). The disadvantages of such a mispricing are obvious. The trade tax means an additional financial burden that is at the expense of profit. Classification as a “commercial enterprise” under income tax law also has specific financial implications.

A designer who wants to avoid these disadvantages should ensure that the financial authorities quickly clarify the incorrect assessment of his professional activity. In many cases, talking to the clerk responsible will help. If this conversation is unsuccessful, an objection must be lodged against the trade tax assessment notice if necessary.

Such a procedure can of course only be recommended in those cases in which the designer's activity is within the scope of the usual professional profile. If, on the other hand, other services such as advertising advice, advertising, etc. are provided in addition to the pure design work, then caution is required. In such cases, there is a mixed (professional and commercial) activity, the taxation of which gives rise to particular problems.

The tax office will only record the income of a designer as income from freelance work if it has convinced itself that the designer is not exercising a commercial, but an independent artistic activity within the meaning of Section 18 (I) No. 1 EStG. A review and qualification of the designer's work must therefore take place. This raises the question of how this check is to be carried out and what criteria are used to determine the »artistic property«.

The tax authorities are of the opinion that a case-by-case examination must always be carried out. Even this starting point seems to be wrong when one considers that the freelance work (»artistic property«) is generally affirmed for example with sculptors, painters and picture reporters (cf. Fohrbeck / Wiesand / Woltereck, employee or entrepreneur? On the legal situation of the cultural professions, p. 330– 306). Why shouldn't a general tax allocation to the artist professions also be possible for designers?

For a general recognition of an »artistic activity« with e.g. graphic designers, valid until proof to the contrary, the following aspects speak in particular:

  1. Graphic designers use artistic means and methods according to artistic maxims to create graphic designs, whereby the focus is on personal intellectual and creative performance. The job title "graphic designer" with its word components "graphics" (= writing, drawing, painting) and "design" (= drafting) indicates this personal intellectual and creative achievement, which is a prerequisite for copyright protection according to § 2 UrhG and at the same time characterizes the artistic activity within the meaning of § 18 Paragraph I No. 1 EStG.
  2. The graphic designers receive their training at state universities, technical colleges and academies in Germany. Studies at these universities conclude with the award of university degrees. In order to obtain the degree, the examination regulations require that the candidate has the ability to work independently on an artistic and scientific basis.According to the case law of the BFH, anyone who has completed previous training at a university, art academy, etc. can always be regarded as an artist or can provide evidence of an appropriate educational background. According to a BdF decree of September 26, 1962 - IV A / 2 - 54311 - the diplomas of the craft art schools or technical colleges for design are also to be recognized as proof of the status of an artist.
  3. According to § 1 Artists' Social Insurance Act (KSVG), self-employed artists are compulsorily insured in the employee pension scheme. In the questionnaire prepared by the Artists' Social Insurance Fund, the graphic designers are explicitly listed and assigned to the group of people who are subject to insurance as independent artists.
  4. In a judgment of the Finance Court of Baden-Württemberg of February 25, 1976 (AZ III 27/75) it is expressly stated that the designers generally exercise a freelance activity, provided that they do not use the results of their creative activity themselves, but - as is usually the case - Leave it to a third party for a fee for practical evaluation. Literally it says in the reasons for the decision:

»The prerequisite for a freelance activity in accordance with Section 18 (I) No. 1 EStG is that the exercise of the profession is based on self-dependent creative activity, and it does so in all cases in which the result of the work of the designer, namely the draft, the Model, the shape and color as an intellectual idea is turned into a special subject of performance. The designer provides a non-commercial service to his client like any other freelance worker with advice, the transfer of an intellectual idea, even if it is oriented towards mundane everyday life «.

This recognizes that the designers belong to the freelance group simply because they offer intellectual and creative services and can therefore be equated with the other professional groups of Section 18, Paragraph I, No. 1 of the Income Tax Act.

5. The decisive argument in favor of graphic designers developing an artistic activity within the meaning of Section 18 (I) No. 1 EStG results from the Copyright Act. The drafts and final drawings by a graphic designer usually belong to the works of applied art that are protected by copyright (Section 2 Paragraph I No. 4 UrhG). Under these circumstances, the question arises as to how, in the area of ​​tax law, designers can still be denied their own creative and artistic activity. A work that is protected by copyright is therefore, by definition, also a personal intellectual creation. Therefore, if a taxpayer provides graphic services that fall under the Copyright Act, the creative and individual character of his activity is proven at the same time.

The tax authorities seem to have completely overlooked this copyright aspect.

In spite of the numerous arguments in favor of a general recognition of the »artistic quality« of graphic designers, the tax authorities seem not to be prepared to abandon the previous practice of examining individual cases. The reason for this is the case law of the Federal Fiscal Court (BFH), which in the few decisions that deal with the work of graphic designers has always required a review of the "actual circumstances of the individual case".

Although there are isolated decisions by the tax courts that recognize artistic activity due to the special nature of the graphic designer services even without special evidence and expert reports (e.g. judgment of the Baden-Württemberg Finance Court of February 25, 1976), these judgments have so far not been made Received a response from the tax authorities. Obviously, there must first be a fundamental change in the BFH case law before the practice of the tax offices also changes.

As long as the correction of the highest court rulings is pending, the graphic designers have to live with the fact that the tax authorities may require them to prove their »artist status«. As a precaution, every designer should therefore find out how such a verification procedure works.

Unfortunately, practice shows that the handling differs greatly from tax office to tax office. There is no uniform procedure for determining the »artist status« that is practiced in the same way by all tax offices in Germany.

Although there have been various attempts in the past to standardize administrative practice through decrees by the Federal Finance Minister and the State Finance Ministers, these efforts have apparently not changed too much in the different procedures of the individual tax offices. As before, the »artistic quality« of a graphic designer is checked in Bremen using a different procedure than, for example, in Berlin, Stuttgart or Saarbrücken.

For example, the tax offices are in Bremen instructed to first telephone the director of the Kunsthalle to inquire whether the graphic designer in question is known there as an artist and his activity can therefore be recognized as an artistic activity without further ado. In Hamburg and Lower Saxony on the other hand, an appraisal of the work is carried out from the outset by the appraisal commission set up specifically for this purpose. in the Saarland there are no expert committees, here the tax office decides completely independently, although it is not entirely clear from where the respective clerks get the competence required to assess the »artist status«. In Stuttgart the tax authorities proceed differently. There a commission was set up at the Association of Visual Artists Württemberg e.V., from which a graphic designer can obtain an expert opinion at his own expense if the tax office doubts his freelance work.

Not only the procedure, but also the required evidence are very different. In North Rhine-Westphalia is z. B. affirms the »artist status« without further verification (!) If the graphic designer proves that he is exercising his activity due to a completed university education or an apprenticeship at art schools or universities of applied sciences. (Decree of the Minister of Finance NW of July 28, 1969, p. 2246 - 5-VB 1). In the area of ​​the regional finance directorates Nuremberg and Frankfurt am Main on the other hand, the previous education of the graphic designer is only taken into account as an indication; Incidentally, a completed university degree is not in itself sufficient to secure recognition of the "artistic status". In Lower Saxony Finally, the designer's training does not seem to play a role at all, because there generally some test work has to be submitted to an expert committee.

The situation is made even more difficult by the fact that uniform handling does not seem to be guaranteed even in the area of ​​the individual regional finance directorates. An example is the procedure of a Bielefeld tax office, which belongs to the district of the regional tax office in Münster. The Oberfinanzdirektion Münster states that in their area - in accordance with the decree of the state finance minister - the expert commission for graphics at the University of Applied Sciences in Cologne is to be involved if the tax office is unable to make its own decision after reviewing the facts. On the other hand, the Bielefeld tax office takes the view if the graphic designer provides "an opinion from an expert recognized in this field". According to the Bielefeld tax office, there is no longer an expert commission ("due to insufficient use").

In view of this contradicting and inconsistent procedural practice, it is all too understandable that there is some confusion among the graphic designers and their tax advisors.

The different procedures for checking the »artist's status« are unlikely to be compatible with the principle of equal treatment (Article 3 of the Basic Law). In addition, the tax authorities' practice sometimes does not seem to be in line with the provisions of the Tax Code (AO).

Most tax offices require taxpayers to submit an expert opinion on their "artistic status", whereby the graphic designer concerned is usually referred to an expert commission set up at the regional finance directorate, the professional association of visual artists, the ministry of education or another body. The tax authorities are of the opinion that it is up to the taxpayer to provide evidence of artistic activity. If the procurement of such evidence costs money, the tax authorities believe that these costs must also be borne by the taxpayer himself.

In contrast, it says in Section 88 (I) AO that the tax authority has to determine the facts "ex officio". Clarifying the facts is by no means a matter for the taxpayer; rather, he merely has to participate in the determination of the facts (Section 90 (I) AO). Therefore, if the tax authorities have doubts as to whether there is an artistic activity in an individual case, it must obtain the necessary information on its own initiative and arrange for the necessary evidence to be gathered (Section 92 AO). This means that the tax offices - if necessary - have to provide for an assessment of the graphic designer's activities themselves (Section 92 No. 2, Section 96 AO).

Since the taxpayer, rather than the taxpayer, has to ensure that an expert opinion is obtained, it can hardly be justified to charge the taxpayer with the costs of such an appraisal.

Dr. Wolfgang Maassen