Current Developments of Contributions to US Pension Plans under German Tax Law

Abstract

This article analyses the current tax developments of contributions to US pension plans (e.g., 401(k) – plan) under German tax law from a domestic tax law and from a double tax treaty perspective, whereas the main emphasis is put on the employer contributions. There have been two fundamental incidents that have had major impact for the current German domestic tax law and double tax treaty treatment of employer contributions to US pension plans: firstly, in a decision dating 5 July 2007, the German Federal Court of Finance has ruled for the first time that employer contributions to US pension plans should be qualified as employment income under German domestic tax law. Secondly on 28 December 2007, a new Article 18A Double Tax Treaty Germany/ USA (in the following: ‘DTT Germany/USA’) concerning the treatment of pension plans for tax treaty purposes was introduced (partly) retroactively as of 1 January 2007 within the adoption of a new protocol amending the DTT Germany/USA. This article analyses and evaluates the impacts and changes under German domestic tax law according to the aforementioned incidents, starting with a short overview of the US domestic taxation of US pension plans which is important for understanding the issues regarding the German domestic tax law and double tax treaty treatment.