Risk Social Security / Tax audit for streamers, esports enthusiasts, etc.

Streamer/Influencer and Control

I have often pointed out that for many new users of social media channels such as streamers, YouTubers, Twitchers, influencers, but also for esports teams and the like, there are numerous dangers, mainly in the law of unfair competition and copyright and, by and large, the catchphrase “warning”.

While the cost of such a warning is often annoying but manageable, 99 of the influencers/entrepreneurs (whether on Instagram, YouTube, Twitch, Twitter, Snapchat or other social media channels) seem to be a much greater danger. completely ignored.

And this danger comes from the authorities of the Federal Republic of Germany: they are tax auditors and social security auditors.

What are tax auditors?

Tax auditors check companies and the self-employed at regular intervals, in the event of suspicion or reporting, to see whether the reported transactions, profits and thus tax payments are really true. Full, consistent and correct accounting documents must be provided. Tax audits can be carried out separately by tax type and may be limited, for example, to VAT or only to income tax. The errors are already widely conceivable, even if you try to file correct tax returns and start with incorrectly filled in catering documents, incorrect invoices from abroad, incorrectly recorded income from advertisers, networks, etc. and end in case of incorrect accounting, incomplete documents and calculation errors. Even these mistakes can be very expensive if it is only a matter of additional payments of a few months. In the worst case, however, these may even be annual periods. In the case of a complete lack of declarations of certain revenue, incorrect declaration of revenue or expenditure and numerous other circumstances, a case of tax evasion is quickly reached, which is not only particularly expensive, but even criminally relevant.

Is this also the case with social security?

Social security audits are carried out by social security institutions, for example from the German Pension Insurance. While self-employed persons (such as streamers or other influencers) may also be affected, it is usually problematic when you have employees. Incorrectly paid social security contributions for employees, such as players of an esport team, helpers of a streamer, etc., not only lead to additional payments and interest claims, but in the worst case also to criminal consequences of the responsible (such as a managing director). The problem here is that in social security law, as a rule, what has been contractually agreed does not count, such as (“Section 1 person X is not an employee.”), but how the actual circumstances, based on social security law, are. Contracts that players of an esport team are supposedly self-employed and have to increase their own revenues are irrelevant if the actual circumstances and the legal assessment result in players being considered employees. It does not matter how much money was earned, whether the team has a legal form or anything else. There can also be similar problems with streamers, Instagram users and many other social media entrepreneurs. These can also come from the realm of whether someone is an employee or a contractor. But there are other traps. In this way, even contractors can come into conflict with the artists’ social fund. For example, I assume that few influencers, streamers or esports teams know that anyone who commissions artistic or journalistic achievements to further exploit them publicly will be able to make the most of the amounts paid for them. artist’s social tax. These can be natural persons who occasionally create, cut or edit a video for their own YouTube channel, but of course also those people who write texts, create thumbnails regularly or perform other artistic works. Courts don’t have fun with these circumstances.

The legal difficulties are enormous

In a short outline here on the blog can possibly describe the enormous detail, the regulatory frenzy or even just the problems in the approach. I could create my own blog or publish a book. And then I wouldn’t cover all the problems.

However, this post has a completely different intention. I would like to draw attention to the risk that many people are unaware of. What risk? The risk lies in the fact that it is not only payments that you do not expect, for which you have no money and which also have interest. Rather, the risk lies in the fact that in a large number of cases not only could there be criminal consequences, but also, for example, problems with future prohibitions on commercial activities could arise (“keyword: unreliability” ). In addition, when it comes to payments and costs through social security and/or tax audits, it is not clear to most that the tax obligations are generally not “insolvency-proof”, so a limited liability company or other legal form usually does not protect against obligations and consequences. The same applies to private insolvency, where the subject is too complex for this post to explain all the alternatives and details. In summary, you usually don’t get around due tax repayments or social security amounts and owe them, often suddenly and surprisingly, for many years, if not decades. In addition, claims by the tax authorities and the social security institutions usually do not have to be specifically indicted and then enforced, but are simply enforced themselves, for example by customs. Even if one can resist, this leads to considerable costs for lawyers and other financial risks.

The greatest danger

In my opinion, this is one of the greatest dangers for young self-employed people and start-ups in particular. The sum of due contributions can quickly become a risk to insolvency and founders/entrepreneurs can be confronted with existential fears faster than they would like. Every year, thousands of self-employed persons fall into this trap, which is mostly due to the fact that the experience and legal knowledge for proper accounting, proper financial planning, the amount of tax repayments, contracts and obligations and other simply missing and, especially at the beginning of self-employment, unnecessary greed in terms of expenditure on consultants, lawyers and tax advisers.

But why my post now? Well, most of my clients are streamers, influencers, young media startups, social media networks, esports teams and the like. They have long acted in a kind of grey area. For many tax offices, social security agencies and similar institutions simply werenot “on the radar.” It was often not known that someone gets stakes from subscriptions to Twitch as a payment from the US, as well as that brands pay money for a young woman posting photos of clothes on Instagram. However, this has changed massively in the meantime. There are currently thousands of such audits, reclaims and similar procedures every year. In addition, time-barred notices are also rare, because if nothing has been declared, a declaration cannot become legally binding. But it’s not just tax auditors who are now known for things like YouTube or Instagram, but social security agencies in particular are increasingly targeting and aggressively following such circumstances, which are trying to avoid social security contributions. This applies to esports organisations and their players as well as to supposed “partners/colleagues/contractors” of a streamer or other influencer. This trend will intensify this year and I expect that certain changes in the reporting obligations of networks such as YouTube, but also through notices from the tax authorities among themselves. Thus, in the meantime, regular, if, for example, a sponsor etc. costs as operating expenses, a control report to the tax office of the respective recipient of the money. As digitalisation is also increasing in the case of tax offices and social security authorities, and such reports and audits can be made more quickly and effectively, I expect the number of audits and enquiries to increase. YouTubers, esports teams, Instagram influencers, Twitch providers and the like should be prepared for exams. The number of exams will increase this year and the risk for start-ups and young entrepreneurs will be massively increased.

I know first-hand that there have been increased checks, including fines, both in the esports and streaming sectors in 2018.

Better caution than forbearance

It is therefore now necessary to take precautions, to establish proper procedures, contracts, accounting, document retention and the like, as well as methods to have effective financial planning and thus not to be surprised by payments.

I am happy to help with this initial or on a regular basis, also in the form of a management consultancy. Just contact me with information about the circumstances and we will discuss what measures are appropriate.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.