EXPATRIATE SERVICES Within the last 10 years the number of employees seconded to foreign jurisdictions increased significantly. Further, another growth by 40 percent is expected until 2020. The ongoing globalisation of markets results in an increasing amount of employees seconded from Germany abroad (“outbound secondments”) and vice versa (“inbound secondments”). Consequently, managing compensation, tax compliance and global mobility is becoming more costly, complex and time-consuming. When making international assignment decisions, it is important to understand the total tax and social security costs. The appropriate accrual of tax liabilities across the assignment period avoids unanticipated costs which could undermine the value of the assignment for the enterprise. Germany has signed Double Tax Treaties (“DTT”) with many countries. New treaties are continuously added and old treaties are revised. It is decisive to monitor the new developments in the DTT’s concluded by Germany to advise the client respectively its seconded employee in the best possible manner. Unfamiliarity with German income tax law and the handling of tax payments increases the burden of each individual employee and therefore the time and energy spent by enterprises for handling taxes, rather than focusing on business needs. Employees on inbound secondments may be subject to German taxation and employees on outbound secondments may face foreign tax residency. These employees have to ensure that all foreign tax credits are claimed to avoid a double taxation. Although the employee is responsible for his/ her individual income tax filings and payments, an employer whose employees are not fulfilling their individual obligations may find itself exposed to reputation risk if such compliance failures become publically known. RBS RoeverBroennerSusat provides comprehensive support relating to working across international borders and assigning people to or from Germany. We could support our clients to ensure compliance for individual income tax purposes and manage the compliance process effectively. Our service covers the preparation of the German income tax returns and includes a full range of services related to German tax compliance. In particular, RBS RoeverBroennerSusat offers the following services: 1. 2. 3. 4. 5. 6. 7. Departure and arrival interviews Individual income tax return preparation and tax advice Consulting regarding tax protection and tax equalization Payroll support for assignee compensation/payroll tax advice Support during external tax and social security audits Social security advice (subject to verification of professional legal admissibility in particular cases) Employment law (legal consulting services are provided by RBS RoeverBroennerSusat Rechtsanwaltsgesellschaft mbH) 1 EXPATRIATE SERVICES As a member firm of the Moore Stephens International network we can offer a seamless support for inbound and outbound secondments including tax return preparation and related queries in many countries all over the world. Hot topic in the taxation of expats German Federal Tax Court doubts the constitutionality of treaty overrides In most countries, DTT’s have a status superior to that of ordinary domestic tax laws. However, in some countries treaties can be changed unilaterally by subsequent domestic legislation (“Treaty Overrides”). Also German law provides numerous rules, which override the benefits of the DTT, making them subject to further requirements, which are not included in the DTT. Sec. 50d Para. 8 EStG (Einkommensteuergesetz – German Income Tax Act) could be seen as a sample for such a treaty override provision. This provision requests as a precondition for the granting of an exemption according to a DTT that the resident taxpayer proves either (i) a waiver of the taxation right of the jurisdiction to which the taxation right is assigned or (ii) evidences the payment of the taxes assessed. Until recently treaty overrides were regularly accepted by case law. However, the German Federal Tax Court (BFH) expressed in the case I R 66/09 doubts whether treaty overrides laid down in tax treaties substituting the credit method by the exemption method are in line with the principles of the German constitution. The Federal Tax Court classifies in particular the treaty override in Sec. 50d Para. 8 EStG as an infringement of Article 25 of the German Basic Constitutional Law, which grants priority to international law over domestic standards and thereby also to the DTTs concluded with other countries. Therefore the German Federal Tax Court (BFH) referred the case to the Federal Constitutional Court (BVerfG) to decide whether this explicit treaty override provision complies with the German constitution. As a result of the court case of the German Federal Tax Court (I R 66/09) affected taxpayers should keep their income tax assessments open (e. g. by filing an appeal with reference to this pending court case). Contacts Marcus von Goldacker Tax Advisor Partner T +49 89 350 00-2324 [email protected] Konstantin Bösl Tax Advisor Senior Manager T +49 89 350 00-2326 [email protected] Detlef Rost Tax Advisor Manager T +49 30 208 88-1199 [email protected] www.rbs-partner.de 2