The corona crisis does not stop at football. While the German Football League DFL has abandoned the season, the clubs are struggling with the economic consequences. Borussia Mönchengladbach was the first club of the 1. Bundesliga, which made public the (partial) waiver of outstanding salaries by the professional players. In the meantime, many other clubs have followed this example. While the economic significance of these measures for the respective club is evident, the tax and social security consequences are still largely unknown. In the following, the effects at club level will be presented.
In recent years, most clubs have outsourced their licensed match operations to an independent corporation. Under commercial law, the obligation to prepare a balance sheet arises at the latest from this date. According to the leading decision of the German Federal Fiscal Court (BFH) of 9 June 1997 (GrS 1/94, juris), the waiver of a claim by the athletes, which is permissible under civil law, leads to a reduction of the liabilities side of the debtor's balance sheet and thus to a balance sheet income.
For the tax balance sheet, the commercial balance sheet assessment is generally decisive (Section 5 (1) Sentence 1 of the German Income Tax Act (Einkommensteuergesetz, EStG), so that the waiver of players' salaries also leads to income in this case. However, for a club that may be in an economic crisis, the additional burden of taxing this income is regularly counterproductive and, in the worst case, may lead to insolvency. Since this effect of taxable income in the event of the lapse of an obligation can only occur if the obligation has already been recognised in the balance sheet, the first question that arises is whether liabilities from player salaries should be recognised as liabilities.
Taking into account the general tax balance sheet principles, a liability is to be carried as a liability when it has been legally incurred. If, as is the case regularly, players' salary entitlements arise on a monthly basis, salary payments for future months, as opposed to arrears of salary payments for past months or bonuses for past periods, shall not be recognised. Rather, they represent expenditure in the balance sheet sense. Moreover, in cases where a shareholder waived a valuable claim due to the off-balance-sheet correction of this action, which is to be regarded as a hidden contribution, an increase in income would be avoided. However, with a few exceptions (outside professional football), the players are no shareholders but employees.
In many cases, the agreed salary waiver will therefore lead to the elimination of future obligations without subsequent tax liability. The question arises, however, as to how any income that does arise is to be treated for tax purposes if, for example, unpaid premiums are waived. The legislator has introduced the following new provisions in Section 3a EStG (in conjunction with Section 8 (1) of the German Corporate Tax Act (Körperschaftssteuergesetz, KStG), this standard is also applicable to corporations) in or to react to the necessary tax exemption of restructuring profits and thus largely cast the previous restructuring decree of the Federal Ministry of Finance (BMF) of 27 March 2003 in legal form. According to this provision, increases in business assets are in principle exempt from tax if they result from debt relief for the purpose of corporate restructuring. Via Section 7b of the German Trade Tax Act (Gewerbesteuergesetz, GewStG), the tax exemption of reorganisation income also applies in the area of trade tax. For the applicability of this tax exemption in the current corona crisis, the question arises whether the players waive their salaries for the purpose of a company-related restructuring. Section 3a (2) EStG contains a legal definition of this term and is based on proof that the company is in need of and capable of being restructured, that the measure is suitable and also that the creditors intend to restructure the company at the time of debt relief. If several creditors waive their claims, it can usually be assumed that there is a corresponding intention to restructure. However, the other conditions that should prevent the club from collapsing and make it profitable again will probably also be achieved by the salary waivers. Whether the club is able to provide such proof must be assessed in each individual case taking the overall circumstances into account. If this proof is successful, income from the salary waiver is tax-exempt and does not burden the economically ailing club.
In the individual branches of social insurance, pay is in principle subject to the obligation to contribute and is - apart from additional contributions in long-term care insurance - to be borne equally by employer and employee. The obligation to pay the total social security contribution, on the other hand, rests with the employer.
In order to assess the effects of a salary waiver from a social security law perspective, a distinction must be made between regular and one-off payments. As in tax law, the inflow principle applies to one-off payments here as well. The obligation to pay contributions therefore only arises when the remuneration is actually paid out (Section 22 (1) Sentence 2 of the German Social Code (Sozialgesetzbuch, SGB), book IV). If the player therefore waives the claim to the one-off payment before it is paid, there is no obligation to pay contributions.
However, this is different in the case of remuneration paid on an ongoing basis. In contrast to tax law and one-off payments, the inflow principle does not apply there. Rather, the obligation to pay contributions arises when obligation to pay wages arises under the law (Federal Social Court, judgment of 14 July 2004 - B 12 KR 1/04 R, juris). Since therefore the actual payment is not important here, the salaries remain free of contributions to the extent of the waiver only if the waiver is permissible under employment law, the waiver was agreed in writing on the basis of the provisions of the German Act on documenting essential applicable conditions for employment relationships (Nachweisgesetz, NachwG) (there Section 2 (1) Sentence 2 no. 6) and the waiver is limited to remuneration to which the employee will be entitled in the future (result of the meeting of the umbrella organisations of the social security system on 21/22 November 2001, agenda item 8). In these constellations, the waiver of salary is regularly unproblematic in terms of labour law.
Problems only arise where there are company agreements or collective bargaining agreements on the amount of pay. A so-called opening clause would then be required for a waiver. There are no collective bargaining agreements in the field of sport, nor are there any company agreements on the amount of pay. Since the salary waiver is a so-called debt cancellation agreement, the amount and duration of the waiver should be specified. Conversely, a retroactive waiver of salary by the player does not remove the obligation to pay social security contributions. However, if social security contributions become due despite a declared waiver, it is now easier to apply for a deferral of contributions for March to May 2020 due to the corona crisis and also to prevent the levying of late payment surcharges. The details of this, in particular the priority of short-time working allowance, were set out by the National Association of Statutory Health Insurance Funds in its letter dated 25 March 2020.[HD1]
The DFL and other association have suspended the season for the time being. With regard to the rest of the season, there are two options: the complete abandonment of the season - as has already happened in numerous associations, for example in the Belgian football association KBFV or the German Ice Hockey League - or the postponement of the matches and competitions - as is envisaged by the DFL for 1. Bundesliga and 2. Bundesliga.
In case the season is abandoned, the clubs are still obliged to pay the wages in their function as employer. Even though the players are not able to perform their main duties, to participate in training and competition, the principle "no work, no pay" is broken in these cases because the risk of such a loss of working hours lies with the employer, Section 615 of the German Civil Code (Bürgerliches Gesetzbuch, BGB). For the basic salary this may be applicable. But what about premiums for points and winning games, which make up a high share of the salary in some sports? A claim to payment of the premiums generally only arises when the contractually agreed circumstances occur, i.e. when a point is earned, or a match is won. The athletes cannot now allow these circumstances to occur through no fault of their own. In the case of illness - in which the athlete cannot cause the circumstances to occur, also through no fault of his own - the premiums are partially taken into account when assessing the right to continued payment of remuneration. And even in periods of time off work, when the athlete is also unable to have an impact on the relevant circumstances, the athletes and coaches regularly receive 75% of the total remuneration - the premiums are thus indirectly taken into account.
In both constellations, however, the actual premiums can be calculated on the basis of the points actually gained and the matches actually won by the team mates. The contractually stipulated requirements - the achievement of points or matches won - were fulfilled; although not in the person of the sick or released athlete. This is not possible, however, if no matches take place as is the case at the moment. Premium claims do not arise in this case unless the contracts provide for a provision for this constellation. The premiums can therefore hardly be claimed by the athletes.
If contracts are limited in time "to the end of the season", it must be determined whether the date originally intended as the end of the season or the newly introduced date applies. In any event, the parties' intention at the time of conclusion of the contract was probably related to the actual end of the season and not the date. Moreover, the limitation with the wording "at the end of the season" is similar to a purpose limitation, which also terminates the contract when the purpose - in this case the season - no longer exists, cf. Article 15 (2) of the German Act on part-time work and fixed-term employment contracts (Gesetz über Teilzeitarbeit und befristete Arbeitsverträge, TzBfG).
If, on the other hand, the parties have agreed on a fixed date, the employment contract ends, in principle, in accordance with the rules on fixed-term contracts, on the occurrence of this date - irrespective of whether the season has ended or not. If the parties continue to work after this date without an additional agreement, a permanent employment relationship is automatically (!) created, cf. Section 15 (5) TzBfG. The clubs should therefore urgently take care to make appropriate arrangements in good time to avoid a fixed-term contract turning into a permanent contract. Not least in the discussions surrounding the Federal Labour Court judgment in the "Heinz Müller case" (BAG, judgment dated 16 January 2018 - 7 AZR 312/16, juris), the drastic consequences of an employment contract becoming a permanent contract were presented in detail.
If the parties reach a mutual agreement to continue the employment relationship, the next problem arises: The new agreement constitutes a new fixed-term employment contract. However, fixed-term contracts may only be concluded with employees who were not previously employed by the employer, cf. Section 14 (2) Sentence 2 TzBfG. Here too, the consequence would therefore be that a permanent employment relationship would be created. This consequence shall not apply if the limitation period has not yet lasted for two (2) years. In such a case, the time limit may be extended up to a total duration of two years. Or if the new time limit is (again) based on a factual reason. In this constellation, however, the time limit cannot be justified on the basis of the nature of the work performed (Section 14 (1) No. 4 TzBfG), as is usually the case in professional sport. This is
because the BAG's reasoning in the "Heinz Müller" judgment is essentially based on the signs of exhaustion suffered by the athletes, which justifies the time limit. However, with a time limit of only a few months until the actual end of the season, exhaustion is unlikely to occur. It is therefore necessary to look at the remaining reasons to enter into fixed-term contracts and to examine them on a case-by-case basis.
Given the uncertain and complex legal situation, it remains to be hoped that athletes, clubs and associations will find sensible solutions. The law offers many starting points for this which need to be examined. It may be possible to conclude by interpretation that the termination date intended by the parties was not the fixed date but rather the actual end of the season. In this sense, it is also proposed to apply Section 313 BGB with regard to the time of termination and thus to achieve a change in the contractual conditions based on an interference with the basis of transaction (Störung der Geschäftsgrundlage). However, the provision of Section 313 BGB only applies in extremely rare cases in employment law, as the employer must primarily use the means of employment law. In the present constellation, fundamental regulations of the law on fixed-term contracts would thus be circumvented. In any case - should Section 313 BGB be applicable - problems arise if the athlete has already signed an employment contract with another, foreign club. If the season, or at least the intensive preparatory phase, already begins there while the "old" season is still running in
Germany, it can hardly be assumed that the new club would have set the start of the contract at a later date if it had known about the corona crisis. It is therefore important to discuss all possibilities and to find a solution that is acceptable and legally secure for all parties involved.