Germany: Taxpayer may benefit from preferential treatment under any applicable income tax treaty (tax court decision)
A tax court decision concerning a taxpayer that may benefit from any preferential treatment granted under an applicable treaty.
A tax court decision concerning preferential treatment granted under an applicable treaty
The German Federal Tax Court (BFH) held (file ref. I R 30/18) that the allocation of taxing rights over third-country income to Germany under the Germany-France income tax treaty did not override the exemption of that income under the Germany-Switzerland income tax treaty. The court emphasized that, as a basic principle, the taxpayer can benefit from any preferential treatment granted under an applicable treaty.
Summary
A German resident taxpayer worked as a geriatric nurse in Switzerland and commuted to his job from a second home in France. His salary was exempt from German tax under the Germany-Switzerland treaty. In addition, Switzerland did not levy any tax because the Switzerland-France treaty assigned taxing rights over the income of cross-border commuters to France. The taxpayer paid tax on the income in France, but the Germany-France treaty allocated taxing rights over this (third-country) income to Germany. The issue in dispute was whether the allocation of taxing rights for third-country income to Germany under the Germany-France treaty could override the German exemption of the income under the Germany-Switzerland treaty.
The Lower Tax Court of Münster held that the income remained exempt under the Germany-Switzerland treaty, and the BFH confirmed. The BFH reasoned that income tax treaties are of equal force and must be interpreted autonomously and independently of each other. Germany's obligation to exempt certain income is not affected by the fact that a treaty with another country (in this case France) allocates the taxing right over this same income to Germany.
Read a November 2022 report [PDF 873 KB] prepared by the KPMG member firm in Germany
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