German Income Tax Research Articles

Reform des Einkommensteuertarifs

Abstract According to German income tax law, a large number of private expenses are deductible when determining the tax base. These are expenses that do not serve to generate income. The legislature has allowed them to be deducted in order to make it easier for the citizens concerned to finance the existential needs of themselves and those they support and to trigger incentives for certain socially desirable activities e. g. through donations to non-profit organizations. The reduction in the tax burden caused by their deduction increases with the amount of taxable income, which contradicts the principle of fair taxation. It is proposed that the relief in question should in future be regulated by a deduction of 25 percent of the permissible private expenditure from the tax liability according to tariff. Furthermore, the replacement of the current tariff regulated according to mathematical formulas by a tariff completely regulated in stages of constant marginal tax rates is proposed. Simulation calculations show that the tax reform leads to a relief for lower to middle incomes and an additional burden for higher income.

The Current Development on the Deduction of the Vocational Tool Expenses as Income-related Expenses in the German Income Tax Act

The Current Development on the Deduction of the Vocational Tool Expenses as Income-related Expenses in the German Income Tax Act

Gathering support for green tax reform: Evidence from German household surveys

Green tax reform is unpopular because, typically, the poor are hurt most by the higher prices of carbon-intensive commodities. If revenues from a carbon tax are recycled, it may be feasible to gain popular support for green tax reform. To investigate this, we estimate an EASI demand system from German household data and a labour supply schedule, using wage data, and the German income tax schedule and let emission intensities decline in the carbon tax. If the revenue from a carbon tax is recycled via a lump-sum transfer to all households, this gives more equitable albeit less efficient outcomes, yet 70% of households are worse off. If the revenue is recycled via lower income taxes, there is more efficiency at the expense of more inequality, and about half of households benefit. With a recycling mix of lump-sum transfers and lower income taxes, popular support can be mustered without hurting equity too much. We also investigate the effects of Germany meeting its legal target for curbing emissions by 55% in 2030 relative to 1990 levels. We find that most of emission reductions are due to producers responding by lowering emission intensities rather than by consumers to less carbon-intensive consumption categories.

Is Germany’s Latest Amendment to Its Anti-Treaty/Directive Shopping Rules Fully Compliant with EU Law?

In this article, the authors address the purpose and scope of section 50d(3) of the German Income Tax Act (the anti-treaty/directive shopping rules), the status of the current and previous versions of section 50d(3) and the impact of various ECJ and German court decisions. They then provide a comprehensive analysis of the revised version, which entered into force on 9 June 2021. Finally, the authors reflect on the implications of the revised section 50d(3) on holding companies.

Recent developments in German taxation of distributions of foreign trusts and foundations to their Germany-based beneficiaries

Abstract Distributions of foreign trusts and foundations to their Germany-based beneficiaries may be subject to German income and gift tax. Fortunately, German tax authorities now have implemented a judgment of the German Federal Fiscal Court rendered on 3 July 2019 stating that distributions made by a foreign foundation to its Germany-based beneficiaries are not subject to German gift tax provided that (i) the distribution has been made in accordance with the foundation’s statutes and (ii) the beneficiary does not have a claim regarding the distribution received. However, there are still some cases in which gift tax may be levied on such distributions, so that the risk of potential double taxation with both income and gift tax is still not completely off the table.

Gathering Support for Green Tax Reform: Evidence from German Household Surveys

Green tax reform is unpopular because, typically, the poor are hurt most by the higher prices of carbon-intensive commodities. If revenues from a carbon tax are recycled, it may be feasible to gain popular support for green tax reform. To investigate this, we estimate an EASI demand system from German household data and a labour supply schedule, using wage data, and the German income tax schedule and let emission intensities decline in the carbon tax. If the revenue from a carbon tax is recycled via a lump-sum transfer to all households, this gives more equitable albeit less efficient outcomes, yet 70% of households are worse off. If the revenue is recycled via lower income taxes, there is more efficiency at the expense of more inequality, and about half of households benefit. With a recycling mix of lump-sum transfers and lower income taxes, popular support can be mustered without hurting equity too much. We also investigate the effects of Germany meeting its legal target for curbing emissions by 55% in 2030 relative to 1990 levels. We find that most of emission reductions are due to producers responding by lowering emission intensities rather than by consumers to less carbon-intensive consumption categories.

독일 조세법상 소득공제제도 연구 -형평공제, 누진유보 및 부부합산분할과세제도와 관련하여-

독일에서는 점차 신분제적 분류에 따른 특정한 소득세가 부분적으로 각 제후국들에 도입되어 시행되다가 프로이센 제국에서 소득원천설에 따른 체계적이고 근대적인 소득세법이 미구엘 재무부장관의 개혁으로 1891년부터 시행되었고, 이는 점차 인지세의 세수를 대체하기 시작하였다. 그 이후 1925년에 소득원천설뿐만 아니라 순자산증가설에 따른 과세대상 소득을 추가하였고, 1934년의 개정 이후에 현재까지 큰 변화 없이 부분적인 개정을 통해서 독일의 소득세법이 적용되고 있다. 소득세의 본질상 재정목적을 위한 공평과세의 실현이 우선적인 목적이기에 소득세법상 소득공제제도도 응능부담의 원칙(또는 경제적 급부능력의 원칙) 중 순소득과세의 원칙을 반영하는 제도이다. 독일의 세법학에서 발전시킨 이론으로서 순소득과세의 원칙은 객관적(직업적)인 부분과 주관적(개인적)인 부분으로 구분된다. 이를 통해 총수입금액 중 가처분소득만이 과세표준으로 계산되는 것이 현대 소득세법의 원칙적 체계이다. 소득공제와 관련하여 본 논문에서는 독일의 소득공제제도에 대한 소개와 함께 소득세의 과세단위로서 부부합산분할과세제도(Ehegattensplitting)에 대한 논의를 중점적으로 고찰한다. 독일의 부부합산분할과세에 대해 2000년대 이후 지금까지 꾸준히 소개되어 왔으며, 이 제도의 장점을 부각하여 우리나라에도 선택사항으로 도입하자는 주장이 제기되어 왔다. 그러나 독일의 부부합산분할과세제도와 관련하여 조세행정의 유용성(Praktikabilität)에 대해 구체적으로 고찰한 문헌이 부족하다. 형평공제와 누진유보라는 제도를 함께 고려하여 소득공제에 대한 비교법적 고찰을 시도하여야 한다. 우리의 경우 실업급여라는 근로소득 보상액은 비과세하고 있으며 세율을 산정하는 과세표준 구간에도 영향을 미치지 않고 있다. 그러나 조세정의에 더 적합하여 합헌적이라고 평가되는 형평공제와 누진유보를 우리의 소득세제에 도입하는 것도 고려해 볼 수 있다. 조세행정과 관련하여 근로소득에 있어서 원천징수와 연말정산시 부부 간의 소득정보에 대한 프라이버시 보호의 문제가 발생할 수 있다는 점은 새롭게 조명해 보아야 한다. 특히 부부합산분할과세가 부부공동체 및 가족공동체의 보호라는 입장에서 도입이 필요하다는 견해에서 고찰하지 못한 부분으로서 우리의 사회분위기에서 배우자의 소득정보가 노출되어 확산될 수 있다는 위험을 용인하기란 쉽지 않다. 소속 직장에서 연말정산을 하지 않더라도 차년도에 부부합산분할과세가 적용된 원천징수액 또는 미납징수액에서 합산소득에 대한 세무정보를 추정할 수 있다는 점에서 세무정보의 보호, 조세행정의 유용성을 함께 추구할 수 있는 보완책을 논의할 필요가 있다.

The Income Tax Compliance Costs of Private Households: Empirical Evidence from Germany

Using a survey of more than 18,000 taxpayers in North Rhine-Westphalia (Germany), we estimate the income tax compliance costs of German households and study the determinants of these costs. We find that taxpayers need between 9.13 and 10.23 hours and spend €106 to meet their income tax obligations. The average total burden is between €228 (lower bound estimate) and €321 (upper bound estimate). The aggregate cost burden ranges between 2.03 percent and 2.92 percent of the German income tax revenues of tax year 2015. Although these costs have decreased significantly over recent years (mainly for self-preparers without self-employment income), international comparisons illustrate that the German burden is still located in the upper middle. The five most important cost drivers that increase individual costs are the use of tax advice, the appeal procedure, income, return complexity, and education. We cannot confirm that e-filing reduces taxpayers’ compliance costs.

German income taxation and the timing of marriage

ABSTRACTI investigate how the German income tax code affects the timing of marriages. The German income tax code allows married couples to benefit from full income splitting relative to unmarried couples. If their individual incomes differ, legally married couples may benefit from jointly filing their income taxes and thus fully splitting their incomes because of increasing marginal tax rates. The gain from joint taxation for married couples arises every year including the year in which they marry, independent of the month of the marriage. I use data from the German Socio-Economic Panel to test whether couples with larger gains from joint taxation are more likely to marry late in one year instead of early in the subsequent year. The results provide support for the hypothesis that pecuniary gains from joint taxation incentivize couples to prepone their marriages to the last quarter of a year, especially to December.

Germany’s Anti-Treaty-Shopping Rule under ECJ Pressure

This article describes recent events surrounding the German anti-treaty-shopping rule enshrined in section 50d(3) of the German Income Tax Act. Designed to counteract tax planning strategies aimed at benefiting from lower withholding taxes under tax treaties or European directives, its future has been cast into grave doubt. These doubts arise both from domestic developments around possible planning strategies not within the scope of the rule and pressure from ECJ decisions. It is doubtful whether or not the rule will survive in its current form.

Plädoyer für einen „Rentenfonds Deutschland“

The German government has recently adopted a reform package for a statutory pension insurance plan to ensure that the pension level will not fall below 48 % and that the contribution rate will not exceed 20 % through 2025. In addition, there are planned improvements in “Mütterrente” (a pension for mothers), assistance for people with reduced earning capacity and those who do not earn enough. The total extra cost of these measures is estimated at approximately 32 billion euro, financed by funds from the statutory pension system and by increased federal subsidies. It is not yet known pay-as-you-go pension system will be reformed after 2025. The author suggests establishing a “German Pension Fund” as a capital backed fund with a highly diversified investment portfolio. A German sovereign wealth fund of this kind could make an important contribution to greater intergenerational equity. Financing could be provided by, for example, retaining part of the solidarity surcharge on German income tax rather than abolishing it entirely, as is currently envisaged.

Designing the Tax Treatment of Litigation-Related Costs

This paper identifies key tax design issues for how income tax law should treat litigation-related costs paid by defendants, such as attorney fees, court courts, and payments to settle claims or to satisfy judgments, fines or penalties. After discussing how US and German income tax law treat litigation-related costs, the paper identifies four important tax-design issues: (1) how to attribute litigation-related costs to any particular income-producing activity; (2) whether to treat liability insurer payments made on a defendant’s behalf as income to that defendant; (3) whether to coordinate the tax treatment of a payer’s damages payments with the tax treatment of those receipts to the payee; and (4) whether litigation-related costs should be treated as capital expenditures related to the right to receipts established or sought to be established by the litigation itself. In addition, the paper models how the tax-deductibility of liability-related costs might affect liability insurance demand and the insured taxpayer’s level of care. Finally, the paper shows how, under current law, private parties can enforce settlement agreements under which a defendant promises not to seek an allowable tax deduction for litigation-related costs. In so doing, this paper substantially extends and reorients tax theory on how an ideal income tax system could or should treat litigation-related costs

Countering Harmful Tax Practices in Licensing of Rights: The New License Barrier Rule in Section 4j of the German Income Tax Act

On 2 June 2017, the German Bundesrat passed new legislation on the tax deduction of license fees as business expenses under section 4j of the German Income Tax Act (Einkommensteuergesetz). The authors present the new regulation in detail and conclude that it is not only unnecessary, but also problematic from the perspective of constitutional law and European law in particular.

Effects of Levelling the “Middle Class Bulge” in the German Income Tax Tariff

German income tax revenue is rising continuously, and at a faster rate than overall revenue. This is why tax reductions are increasingly called for. One option is to abolish or at least level the so-called “middle class bulge”. This paper analyses how different tax reform variants affect revenue and the distribution of the tax burden across taxpayers.

The Effect of Tax Preparation Expenses for Employees: Evidence from Germany

AbstractUsing a panel of German income tax accounting data from taxpayers with no business income (employees), we find a negative relationship between tax preparation expenses and tax liabilities. However, preparation expenses are shown to exceed estimated tax savings. Specifically, one additional Euro spent on preparation yields an estimated tax savings of 72 cents in an OLS regression and 24 cents in a fixed effects regression. In addition, we observe substantial heterogeneity in tax savings among income groups, but even if we account for long‐term tax savings, tax liability reductions exceed tax preparation expenses only for the highest income quintile. In all other income quintiles, average preparation expenses exceed the estimated tax and time savings. Based on these results, we also examine whether other specific benefits affect an individual's decision to purchase tax preparation services, and the results indicate the importance of the benefits of coping with complexity and reduced uncertainty. Overall, our findings illustrate that the current tax compliance process violates at least two of Adam Smith's principles of taxation, taxes are neither certain nor fair.

On Tax Evasion, Entrepreneurial Generosity and Fungible Assets

We estimate the effects of income from various sources on charitable giving using administrative German income tax data. We demonstrate that charitable contributions are not uniformly affected by different income types. While business and capital income exhibit a positive effect, the remaining income sources do not influence charity on statistically significant levels. This exercise is not new and has been conducted for (at least) three different purposes: 1) Relying on the described results, a public finance researcher would state that business and capital income are more prone to tax evasion than the remaining income sources. 2) An entrepreneurship researcher would conclude that business owners are more generous than employees, and 3) a researcher testing the validity of the life cycle theory (or its behavioral counterpart) would refute the fungibility of income. In contrast, we argue that none of these approaches can answer the intended question if solicitation effects of fundraising or measurement error of the income sources are not taken into account. Applying a fixed effect poisson model, we demonstrate that under certain assumptions the results can have a meaningful interpretation.

Tax Refund Entitlement in Germany for Hybrid Entities

The following note outlines the German regulation in section 50d(1) sentence 11 of the German Income Tax Act, which exclusively addresses withholding tax refunds for hybrid entities. A selection of examples illustrates the discussions that have arisen to date with regard to the scope of the regulation.

Integration of the solidarity surcharge into the German income tax schedule – Effects on public revenues and distributional consequences

Wie mit dem Solidaritatszuschlag 25 Jahre nach der Wiedervereinigung umgegangen werden soll, ist umstritten. Vieles spricht fur eine Integration in den Einkommensteuertarif. Sven Stowhase und Martin Teuber haben im Dezemberheft 2014 des Wirtschaftsdienst auf die Verteilungswirkungen bei einer solchen Integration aufmerksam gemacht. In diesem Beitrag werden die Ergebnisse mithilfe des ZEW-Mikrosimulationsmodells erganzt.

The Tax Treatment of Shareholder Loans in Germany

This article describes the tax treatment of shareholder loan impairments under German tax law within the context of the German national participation exemption regime. In particular, the changes introduced by a recent amendment to the German Income Tax Act are highlighted. The article traces the historical development leading up to the legislative change and analyses the key features of the new provision.

Development and current criticism of asset impairment in German tax accounting

In German tax accounting, the going concern value (“Teilwert”) is the central measurement of asset impairment since 1934. The conceptual weaknesses of the concept have set the future of the 80-year old fiscal measurement tradition up for discussion. First, I shed light on the development of the accounting measurement concepts from Prussian Civil Code 1794 (ALR) to the German Income Tax Act 1934. Then, I analyse the main results of the current tax jurisdiction and draw a comparison to the German commercial law and the IFRS. I state that the creation of a common basis for measurement under commercial and tax law would be desirable, since the going concern value was understood as neither an exception, nor as being subject to the whims of targeted tax accounting policies. The provision of a purely indicator-based impairment test by the IASB is also recommended.