Court ruling could offer line of defense for some US staff in German tax fights
STUTTGART, Germany — A potentially precedent-setting decision by Germany’s top tax court to overturn tax penalties imposed on a civilian U.S. military employee is under review to see what ramifications it might have for other Americans. locked in financially devastating fights with the German tax authorities.
The Munich-based court ruled in February 2021 that the Rheinland-Pfalz Finance Court, home to the largest US military community outside the United States, ignored the provisions of a bilateral tax treaty that obliges the US government to pay unlimited taxes to German tax collectors. in certain circumstances.
The little-known case, which has only just come to light publicly, centered on an unidentified active-duty soldier stationed in Germany in the 1990s.
A US official, speaking on condition of anonymity, said on Tuesday the United States was aware of the decision and was analyzing its implications to determine whether it could be a model for others in Germany covered by the deal. on NATO’s status of forces.
At some point during the ex-soldier in the case’s tour of Germany, he married a German and bought real estate, actions the tax offices see as grounds for targeting American personnel, regardless. regardless of their SOFA status.
He was placed in the crosshairs of the tax authority after leaving the service and moving to a civilian job in the army in Germany.
The case did not delve into the main dispute over whether SOFA provides blanket tax protection to US personnel on assignment in Germany. Yet the crux of the matter is an American’s motive for coming to Germany, according to the Munich court.
Local tax offices have argued that if Ministry of Defense employees are not in Germany “solely” for their work and have other ties to the country, such as a German spouse, they can be taxed as ordinary German resident, regardless of their SOFA protections.
The Munich court said that “what is decisive is when the plaintiff became resident in Germany”.
That means local tax authorities “need to first consider why this person is coming to Germany,” said Georg Weishaupt, a tax attorney representing three US families in separate SOFA-related tax cases. He analyzed the Stars and Stripes decision.
If the American came to Germany “only” for work and later married a German or bought German real estate, military pay would be tax-exempt, Weishaupt said.
But arriving in Germany with a German spouse or anything else that could be seen as a special connection to the country remains problematic, he said.
“(The court’s decision) doesn’t work for everyone,” Weishaupt said. “Maybe (the issue) has been resolved for some affected people but not for all.”
It’s been nearly two years since the United States filed a formal complaint about the tax problem facing hundreds of Americans with military ties to Germany, and the countries remain at a standstill on the issue.
In the meantime, US personnel have been left on their own to fight tax collection efforts in court. The toll demanded by appraisals and costly legal challenges has left some Americans in financial ruin.
The unidentified US official who spoke about the decision said it did not completely solve the problem for targeted Americans, as it is inapplicable in certain scenarios. Weishaupt agreed that it was not a complete cure.
He said the ruling only applies to the family involved in the case at hand, so the question now is how local German tax offices will enforce the ruling in the future.
Still, the case could set a precedent for Americans in similar circumstances who find themselves in the crosshairs of the German version of the IRS.
Among the personnel who could benefit from the court’s decision are people who have been in Germany for a long time, such as teachers at DOD schools, who often spend most of their careers abroad and sometimes buy real estate in Germany, he said. .
Active-duty personnel who arrived in Germany with no particular ties and were then transferred to a civilian post in Germany would also benefit from the decision, Weishaupt said.
However, the ruling would not help SOFA-protected contractors because the ruling only affected Americans paid directly by the U.S. government.
Also, military personnel or civilian Ministry of Defense employees who marry a German while on tour or redeploy to another country and return to Germany for another military assignment cannot use the decision as a defense, did he declare.
Weishaupt said a more comprehensive court ruling was still needed to permanently resolve the issue.
The US cases he has pending in the German legal system are based on the claim that local finance offices base their right to tax on a fundamental misinterpretation of SOFA.
“My position is that anyone who is here under the NATO SOFA is protected, regardless of whether or not they intend to return to the United States or the reasons for coming to Germany in the first place,” he said. he declares. “If my position holds in court, this issue dies and it dies for good.”