Definition and Legal Classification of Tokens of Appreciation
Definition
The term “tokens of appreciation” refers in a legal context to low-value benefits or gifts, which are presented in the course of professional or business relationships. Tokens of appreciation differ from customary gifts, benefits, and advantages, in particular through their low material value and their intended purpose, such as on the occasion of holidays, anniversaries, client meetings, or to recognize a special occasion. Legally, the term is significant especially in tax law, labor law, and criminal law, as well as in the context of regulations relating to corruption prevention.
Distinction from Gifts and Advantages
Unlike larger gifts or benefits, where the risk of influencing relevant decisions can be suspected, tokens of appreciation are considered socially appropriate and, in many cases, legally unobjectionable, provided certain value limits are observed. Primarily, they serve as a sign of appreciation and not as a means of targeted influence.
Legal Aspects of Tokens of Appreciation
Tax Aspects
Income Tax and Wage Tax
For tax purposes, tokens of appreciation are often granted within the context of employment or service relationships. They can appear as part of so-called “non-cash benefits” to employees. According to Section 15 (1) sentence 3 EStG, tokens of appreciation such as flowers, coffee, small delicacies, or books, given on special occasions such as birthdays, weddings, or anniversaries, are tax-free—provided their value does not exceed the exemption limit of 60 euros (including VAT) per occasion and per person (R 19.6 LStR).
Tokens of appreciation that exceed this value may result in taxable wages. In this case, the employer is obliged to pay the wage tax. There is also the option of flat-rate taxation (§ 37b EStG) for certain non-cash benefits.
Business Expenses in Companies
In a corporate context, tokens of appreciation qualify as business expenses if they are business-related and appropriate. It must be ensured that they are not given in connection with the initiation or completion of specific business transactions and no consideration is expected. If the value exceeds the socially acceptable limit, the tax deductibility as a business expense may be denied.
Value Added Tax
As a general rule, tokens of appreciation are also subject to VAT if they are provided by the company for business reasons. The benefit remains tax-free as long as the value of the token does not exceed the exemption limit under Section 3 (1b) No. 3 UStG (currently 35 euros per recipient and year).
Labor Law Classification
Under labor law, tokens of appreciation to employees are considered part of the employer’s duty of care and are legally seen as an expression of appreciation. They affect the principle of equal treatment if granted regularly on generally recognized occasions (e.g., birthdays). If, however, they are intended for only certain employees, a discussion regarding labor law inequality may arise.
Criminal Law Distinction (Corruption Prevention)
The granting of tokens of appreciation to public officials, representatives, or employees in commercial transactions may, under certain circumstances, constitute a criminal offense as the granting of an advantage (§§ 331 ff. StGB, § 299 StGB). However, case law regularly assumes no criminal liability if the tokens are of low value and given on a socially appropriate occasion.
Value Limits and Social Appropriateness
Depending on the individual circumstances—occasion, value, and frequency of the benefit—there are no rigid legal provisions. The upper limit for tokens of appreciation that are unobjectionable under criminal law is generally between 25 and 40 euros per occasion under current practice. Benefits that exceed this threshold or are given systematically may give rise to initial suspicion.
Compliance and Internal Guidelines
Companies are increasingly enacting binding internal rules for handling tokens of appreciation and benefits to avoid liability and reputational risks. These guidelines set maximum amounts, occasions, and reporting procedures, and are generally aligned with legal thresholds.
Template Regulation for Tokens of Appreciation
Typical provisions include, among others:
- Permissibility of tokens of appreciation only for occasions such as birthdays, company anniversaries, or Christmas.
- Setting a maximum value (for example, 30 euros).
- Mandatory reporting and approval requirement once the threshold is exceeded.
Literature References and Case Law
Decisions of the Federal Fiscal Court (e.g., BFH, judgment of 16.10.1964 – VI 207/63) as well as administrative instructions (Wage Tax Guidelines, BMF letters) specify how tokens of appreciation are to be handled in tax and labor law. In criminal law, fundamental decisions of the Federal Court of Justice (including BGH, order of 14.12.2012 – 5 StR 229/12) determine the boundaries between permissible social gestures and punishable granting of advantages.
Practical Examples
Typical tokens of appreciation in business practice include:
- Flowers for a birthday
- Chocolates or wine for a company anniversary
- Small promotional items bearing the company logo
- Invitations to events with minimal intrinsic value (e.g., coffee and pastries for a meeting)
It is always essential that the occasion is socially customary and the material value is reasonably proportionate.
Summary
Tokens of appreciation are low-value non-cash benefits given on a recognized occasion, whose legal admissibility depends on value, occasion, and frequency. Under tax law, they are tax-free up to certain thresholds, and under criminal law are generally considered socially appropriate and not seen as a benefit. Companies are advised to establish clear guidelines for handling tokens of appreciation and to ensure transparency to avoid misunderstandings and legal risks.
Frequently Asked Questions
Are tokens of appreciation tax-free, and are there specific value limits?
Tokens of appreciation are generally tax-free under German tax law, provided certain requirements are met. Legislation provides that tokens of appreciation given to employees on special personal occasions—such as birthdays, weddings, or the birth of a child—remain tax-free if their value does not exceed the exemption limit of 60 euros (including VAT) per occasion. The amount refers to the actual final price of the benefit. As soon as this amount is exceeded, the complete value of the token is subject to tax and social security contributions. The tax treatment can be found in § 19 paragraph 1 sentence 1 no. 1a EStG, which also lists benefits given on a special occasion. In the context of wage tax audits, it is regularly checked whether the exemption limit has been adhered to or exceeded. Important: The expense must arise from a special (private) occasion and must not be connected to any consideration or contractual employment obligation.
Are tokens of appreciation considered as wages?
According to tax regulations, tokens of appreciation are generally not considered as wages, provided they are given within the specified limits and on personal occasions. However, if a token of appreciation is related to the work performed or is seen as a reward for such, it may be classified as wages. The crucial factor is distinguishing between genuine tokens of appreciation and non-cash benefits considered as remuneration for work. If a token falls outside the context of a personal occasion or the value limit is exceeded, it is usually treated as taxable wages and must be taxed and subject to social contributions accordingly.
Must tokens of appreciation be documented?
Employers are required to record tokens of appreciation accurately and to document their occasion and value in a verifiable manner. This is necessary to provide proof to the tax authorities during a wage tax audit that the legal requirements, particularly regarding value limits and personal occasion, were met. This is especially relevant if several employees are frequently or highly valued, as this increases the risk of reclassification to taxable wages. It is advisable to add a copy of the invoice and a brief note of the occasion to the personnel file.
Do the same tax rules apply to tokens of appreciation given to third parties (e.g., tax consultants, business partners)?
Different tax rules apply to tokens of appreciation given to third parties such as business partners or tax consultants. In these cases, the provisions on business gifts apply, which allow the giver to deduct such gifts as business expenses only if they do not cost the recipient more than 35 euros net per business year. If this threshold is exceeded, the right to deduct business expenses is lost entirely. For the recipient, § 37b EStG applies, which allows for a lump-sum tax by the grantor. The 60-euro threshold for employees does not apply on the same basis to business partners.
What requirements apply to VAT when it comes to tokens of appreciation?
Even for tokens of appreciation, the correct treatment of VAT aspects must be observed. For example, if a token of appreciation is given to employees, this benefit is generally not subject to VAT if it primarily serves the employer’s own business interests. However, if the token exceeds the value limit or is not a genuine token of appreciation for a special occasion, VAT may be charged as a gratuitous supply pursuant to § 3 paragraph 9a no. 2 UStG. In practice, the value of the token should be recorded and input tax may be deductible if the general requirements are met.
Can tokens of appreciation also be cash or vouchers?
Tokens of appreciation must generally not involve cash gifts. The tax authorities only permit non-cash benefits or earmarked vouchers representing a specific product or service. Providing cash is not considered a token of appreciation, but is taxable and subject to social security contributions as wages. Vouchers issued after 1 January 2020 must comply with the requirements for non-cash benefits and, for example, allow redemption with the issuer. Credit balances that can be paid out are automatically considered as cash wages.
Can the tax exemption for tokens of appreciation be revoked by the tax office in case of abuse?
The tax exemption for tokens of appreciation depends entirely on compliance with the stated requirements. If, during a tax audit, the tax office finds abuse—e.g., because the value limits were regularly exceeded, the benefits had no personal occasion, or wages were concealed in reality—the exemption can be revoked retroactively. In this case, wage tax and social security contributions will be due retroactively, and interest and, if applicable, late payment surcharges may also apply. Therefore, careful documentation and compliance with requirements are essential to avoid subsequent liability and back payment claims.
