Sorry to bring this old thread back up. However, I have some very important information concerning VA disability compensation and the German tax issue i.e. "Progressionsvorbehalt."
Previously, I stated that according to the DBA VA compensation, under §23, was correctly considered under the "progressionsvorbehalt." However, I just recently won my appeal on this very issue before the "FG Baden-Württemberg." A copy of the "Urteil" can be downloaded from my website at; www.vaclaims-help.com under "Misc. overseas veterans topis" and under 'Taxation." Please do note that this is NOT a final decision as my "Finanzamt" went into "Revision" and is now pending a final decision at the "Bundesfinanzhof" in Munich under the file number "1 R 22/22." Therefore, if your "Finanzamt" is calculating your VA disability compensation into the "Progressionsvorbehalt," then you'll want to file an "Einspruch" within one month of your "Steuerbescheid." I have a template "Einspruch" and all of the other supporting documents and instruction on my website as well. What this will do is force the "Finazamt" to wait to make a decision on your appeal until the main decision before the BFH is decided.
In short, before the "Finanzamt" can apply any income (Whether foreign or domestic) to the "Progressionsvorbehalt," they must determine -under German tax law- what type of income it is first. VA disability compensation is similar to disability payments under the "Soldatenversorgungsgesetz (SVG)" and would fall under § 3 Nr. 6 EStG. Income under § 3 Nr. 6 is not listed under § 32b and, therefore, cannot be applied to it.
Kevin Janey