Economic employer in case of assignment – important update regarding the BMF letter dated 12.12.2023

On 19 December 2025, the German Federal Ministry of Finance (BMF) published an update to its letter on the tax treatment of wages under the provisions of the double taxation agreements. The changes include a simplification rule for determining the economic employer in case of assignments abroad, as well as new provisions for the consideration of wages for periods of garden leave. 

Overview: What does the Update to the BMF letter on assignment abroad entail? 

• Simplified determination of the economic employer for employees 
• Introduction of a binding BMF certificate template 
• No relief from wage tax for employers 
• Wages during garden leave are attributed to the original country of employment 

Simplification rule for the determination of the economic employer 

The letter stipulates that the certificate issued by employers confirming the transfer of wages now serves as an indication for the tax assessment of employees. This implies the following: 

• In future, a complex case-by-case assessment of the party in whose interest the assignment takes place will often no longer be necessary within the income tax assessment of employees. The prerequisite for this is the submission of an employer's certificate in accordance with the template specified by the BMF, confirming that costs have been charged to the company receiving the employee in the country of assignment. 
• The prerequisite for this is that the transfer of costs must comply with the Arm's Length Principle (ALP).  
• If all wage costs, ancillary wage costs and administrative costs are transferred, the tax office assumes that the work was in the interest of the receiving company abroad and that the latter therefore qualifies as the economic employer. 

Determining the economic employer is particularly important if the right of taxation is to be assigned in deviation from the 183-day rule. 

The new certificate template 

In its letter on assignment abroad, the BMF has now also published a template for the "Employer's certificate of cost bearing for submission to the local tax office". Employers can use this template as a guide to notify the tax office of all relevant costs. 

The template for the employer's certificate of cost bearing sets high requirements. In addition to information on cost bearing, data on cost bearing is also requested. In particular, the distinction from the existence of a service agreement must be noted here.    

Who bears the burden of proof for the economic employer in relation to wage tax? 

The simplification rule is only applicable to the income tax assessment of employees. For employers, it is particularly important to continue to independently and comprehensively check who is to be regarded as the economic employer, especially for the payment of wage tax in the case of assignment. In this context, it is not only the pure transfer of costs that must be considered but also factors such as organisational integration into the companies. 

How is the remuneration treated under the DTA during a period of garden leave? 

AAs of 1 January 2024, current wages during a revocable or irrevocable leave of absence (garden leave) from work pursuant to Section 50d(15) of the German Income Tax Act (EStG) will be treated for tax purposes as if the work had been performed in the country where it was originally intended to be performed. However, if a double taxation agreement (DTA) provides a different allocation, the wages must be allocated accordingly. However, it remains unclear how to proceed if the employee in question was employed in different countries prior to being granted leave. In accordance with the OECD commentary, in this case, the location of the last place of employment should generally be used as a basis. 

Conclusion: What impact does the BMF letter have on employees and employers? 

Contrary to the original draft of the BMF letter, the simplification rule for determining tax residency was not included in the final BMF letter. This is generally welcome, as this rule was met with widespread criticism in literature.  

The BMF letter contains clear simplification rules for employees for determining the economic employer. For employers, however, the complex determination of the economic employer in the context of assignment remains unchanged. In addition to the economic burden of wages, a number of criteria are decisive. Employers therefore still face the difficult task of determining the economic employer.  

If you have any questions in this regard, please do not hesitate to contact our experts Meike Ringel and Christian Kappelmann.