"I'm an influencer - do I have to pay taxes?"

Anyone who is active on social media channels and earns money with it must not ignore tax consequences. With an FAQ for influencers, the tax authorities want to create "awareness" for this. However, the list of questions overlooks the special features of social media activities. With the "Online Task Force," the tax authorities are sending a clear signal that online activities should be subject to greater scrutiny in the future.

Social media in the focus of financial management

In a brochure dated May 8, 2020, the Bavarian State Tax Office (special unit of the tax supervisory "Online Taskforce") summarizes the most important tax principles for influencers. The following topics are highlighted:

• Tax types

• Tax obligations

• Tax consequences of free products or gifts.

The cheerful look of this FAQ - intended to appeal to influencers in an easy-to-understand way - should not obscure the fact that the tax authorities take influencers' activities seriously from a tax perspective. The worrisome core sentence of this questionnaire reads:

"If you're an influencer on a regular basis, then the IRS assumes they're earning income from a business."

It almost reads as a threat when the tax authorities write about themselves:

"The social media sector is increasingly coming under the scrutiny of tax authorities, who can get a pretty good idea of what you're doing, for example, through Internet searches or requests for information from your business partners."

Anyone who works as an influencer must therefore assume in the future that the tax office will automatically assume that he or she is also engaged in a tax-relevant activity. In other words, the tax office wants to tax all people who work as influencers.

Social media in tax law

The assumption made by the tax office is understandable from a fiscal point of view, but incorrect from a tax law point of view. For example, the FAQ do not comment on when an activity with the intention of generating income really exists. In particular, the distinction from communication that primarily serves to inform and form opinions is missing. And this reveals the basic problem of this FAQ and the "hasty" assumption on the part of the administration:

Without a definition of the term "influencer" and without a delimitation of the different areas of activity, the presumption made by the tax office is based on an unclear legal concept. This simplification is inadmissible and, above all, does not do justice to the virtual reality on the Internet. It should not be forgotten that the activity as an influencer is often only an extension of an already tax-relevant activity. However, the tax authorities do not explain where self-promotion ends and third-party promotion begins.

It is true that certain activities of influencers may also be subject to certain types of tax, first and foremost income tax. Whether trade tax is also due is rather questionable. The brochure of the tax authorities does not mention at all that trade tax law has exceptions, for example in the case of artistic or freelance activities. In our experience, these exceptions often apply to classic influencers and testimonials.

The explanations on the question of whether free products or gifts are taxable are also so simplified that they must be disadvantageous for the potential taxpayer. In particular, the distinction between gifts in kind, which are related to an income tax-relevant activity, and mere gifts, which could at most be relevant under gift tax law, is missing.

Finally, it should be noted that the letter from the tax authorities assumes from the outset that there is a tax liability in Germany. In our experience in advising influencers, bloggers and other players in the social media field, corresponding activities are mostly international in nature, just like the web itself. Where is the client located, where is the influencer located, and above all, from where does he or she carry out his or her activities? These are all questions that must be asked before a serious tax assessment can be made.

Influencers are private clients and entrepreneurs in one

In three aspects, the financial management can be agreed with and its advice can be considered successful:

• "German tax law is complex."

• "Document, document, document!"

• "Consult a tax advisor."

Anyone who is active in social media, for example as an influencer or testimonial, needs advice that appreciates all aspects of their individual case. In no other area are the transitions from a classic private client to an entrepreneur in his own right so fluid.

In addition to purely tax advice, influencers need to consider other specifics ranging from documenting activities and invoicing to safeguarding the assets they create, which are not only cash but also digital assets.

As we see it, this requires more than brochures with a supposedly modern look. Consulting and communication must be aligned with the self-image of social media. In most cases, this does not require large meetings; a video call or a short chat can be enough to get started.

PSP understands social media processes

We are constantly reinventing ourselves and our consulting services. Our special expertise lies in consulting at the interface of tax law and information technology. Thus, we independently program tax software solutions that are tailored to the digital world.

We see ourselves more as Tax Engineers and live and breathe Lawyer 5.0. We already advise a wide range of people active in social media, from corporate law to competition law to tax law and our own asset management ...

... and also in the defense against unjustified tax claims!