German tax authorities attack foreign preferential tax treatment regulations with respect to cross-border employees
Ingo Prang
by Ingo Prang
The facts of this case concern an EU citizen who moved to Germany but works for a Dutch employer. He uses the Dutch 30% ruling, which makes 30% of his gross salary tax-free (a law made to attract skilled workers to the Netherlands). However, Germany argues that this tax-free portion is taxable in Germany due to existing national anti-abuse rules, which defeat the purpose of the Dutch scheme.
A case is pending before the German Federal Fiscal Court (Bundesfinanzhof, BFH) to clarify how these earnings should be treated under the Dutch/German double tax treaty (DTT) and the German local treaty override regulation.
The key question is whether the employee's salary components, such as monthly salary, bonuses and private use of a car, are to be considered separately or treated uniformly. The tax court regards the 30% rule as a flat-rate tax exemption and not as a flat-rate allowance for income-related expenses.
Although the regulation is comparable to an income-related expense deduction, since 30% of the salary remains tax-free, it does not constitute an actual reimbursement.
The decision of the German Federal Fiscal Court is awaited, and could have far-reaching consequences for the taxation of cross-border employment relationships and the application of the Netherlands’ Employment Relationships Deregulation Act (DBA-NL) and other DBAs.
GGI member firmKPP Steuerberatungsgesellschaft mbHKleve, Emmerich, Weeze, GermanyT: +49 2821 72 04 0
Tax
In the past 25 years, KPP Steuerberatungsgesellschaft mbH has become one of the leading tax consultancy offices in the Lower Rhine region of Germany. The company offers taxation, legal, and consulting services. As KPP is close to the Netherlands, the company has acquired considerable expertise in advising on cross-border matters, especially for foreign companies investing in Germany, e.g. real estate.
Ingo Prang is a German-certified tax advisor and a Partner at KPP. In addition, he lectures on comparative business taxation at the Rhine-Waal University of Applied Sciences. Contact Ingo.
