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Created on Saturday, 08 November 2008 00:06

Last Updated on Friday, 28 December 2012 18:53

Prize Money for Participating on TV Show Taxable as other Earnings

When being paid to participate in a TV show as a candidate, is the money a tax-free reward or is it a taxable income? What do you think? The BFH ’s judgment of November 28, 2007 (re IX R 39/06) now gives you the answer.

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Sandy participated in a TV dating series with six shows. Following the contract signed with the producer, she received a remuneration of € 9,000. Her duties were to play a woman on search for a new boyfriend. She was to remain silent on the details of the contract and affirm any and all press, promotional and advertising measures. Only at the beginning of the show did she learn that her new partner was already determined and it was the main task of her and her partner-to-be to believably transport not only to the audience but also to their families that they had met and fallen in love during the dating show and wanted to marry within two weeks. When this happened and the family members appeared at the ceremony then she and her family would gain a further € 250,000 prize money.

After she received € 9,000, and with her relatives a further € 250,000, the tax office demanded a prepayment from her on the estimated annual tax on both prizes. The tax office considered the trophy money to be “other earnings (sonstige Einkünfte)” – according to §22 no. 3 EStG.

Since her extra-judicial appeal was without success, she initiated legal action. The tax court dismissed the case considering the prize of €250,000 and granted the tax office the claim of taxing Sandy on the prize of €9,000. Thereupon the tax office changed the tax assessment, which in the mean time was serviced to only consider the prize of €9,000. Nevertheless, she went on to the next instance to fight for what she believed was correct. She argued that a remuneration can be considered as taxable income when it is based on a trading of services (money for acting). Such is not the case as in dating shows like the one concerned by this dispute. The producer has no interest in the candidate’s success because it is often more interesting for the audience to see a candidate fail. Therefore, there was no exchange of services. Finally, this prize money is comparable to hitting the jackpot in a lottery. This income is without any doubt not taxable as income.

The Federal Tax Court decided that the Finanzamt correctly assessed Sandy on the income of €9,000. This money qualifies as other earnings in terms of §§32 no. 3, 2 I no. 7 EStG. This source of income applies to all income that does not belong to the other categories. A service in terms of §22 no. 3 EStG is every activity, tolerating or forbearance, that is not a sale or similar to a sale subject to a contract with the attributes of remuneration. It is therefore important that the payment is inducement wards to a behavior of the tax-payer. It suffices that the payment is assumably for the tax-payer’s behavior. Since this is so, Sandy’s prize money is taxable income. This prize is not comparable to winning a jackpot because there is no performance and return performance behavior owed for the payment.

On the other hand, Sandy rendered a persuading performance as an actress for the payment she received. All entertainment shows like the one in which she participated “live” from the failure or victory of the candidates. The producer will only then be interested in paying such a high sum for her participation when persuadingly acts. Therefore, her payment is related to her activity as an actress.

Hint:

When you come into this situation, don’t forget to deduct your costs related to this income. This will typically be travel and accommodation costs. If you bought a new dress or very fancy suit, you might hope to deduct this also. Sorry, that is not possible because clothing which can be worn for “everyday purposes” is not deductible as this is considered as a private and not income related expense. Something else would be true if had to appear in a special costume like a shark, knight, clown, etc.





Published on the old CMS: 2008/6/5
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