No double taxation: Finanzhof rejects first pension complaint

No double taxation
Finanzhof rejects the first pension lawsuit

The plaintiff loses, but the ruling is likely to have far-reaching consequences for pensioners in Germany: The Federal Fiscal Court dismisses a tax advisor’s lawsuit against current pension taxation. However, the judges present a specific calculation formula that politicians must now use as a guide.

The Federal Fiscal Court has dismissed a tax advisor’s complaint on charges of double taxation. This was not the case in the present case, which is why the appeal was unfounded, ruled the highest German tax court in Munich. Accordingly, the retired man received more tax-free pensions than he had paid tax on pension amounts in working life. The Federal Fiscal Court decided that the revision was unfounded.

For the first time, however, the judges laid down a specific formula for calculating double taxation. This will be relevant for future retirees. According to the highest German tax court, neither the basic allowance nor health and long-term care insurance contributions may be included in the calculation of the tax-free portion of the pension. In addition, the higher life expectancy of women must be taken into account. This means that when drawing a tax-free pension, not only the annual pension allowances of the pensioner, but also those of a possibly longer-living spouse are to be calculated from their survivor’s pension.

This decision has no direct impact on pensions. In the future, however, these could be large, because the Federal Fiscal Court is thus recommending that the Federal Ministry of Finance change the previous practice in pension taxation. The basic allowance serves to secure the subsistence level and should not be used a second time as a tax-free pension. “Our answer is no,” said Senate Chairwoman Jutta Förster on this question, which has been debated among tax lawyers for almost 20 years.

Current regulation was introduced in 2005

The origin of the procedure is the subsequent taxation initiated in 2005 by the then red-green federal government. Until then, pensions were tax-free, but the contributions were paid out of the taxed wages. Since 2005 pensions have to be taxed – the taxation takes place “afterwards”. The contributions to statutory and private pensions can, however, be deducted from income tax as special expenses during working life.

A transitional arrangement applies until 2040, which the plaintiffs believe has led to injustices. In the event of a defeat in court, the federal government would have threatened tax shortfalls of one to two billion euros annually. At 11 a.m., the Federal Fiscal Court announced another ruling on pension taxation.

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