Experience with Art 15 I Double taxation treaty Ger- USA / online work?

4 posts in this topic

Hey everyone, 


I have a very specific question that I do not see posted / answered elsewhere: 

This is the situation: 

- US citizens

- Part-time employee in Germany and resident of Germany, therefore considered fully taxable in Germany

- Additional part-time employment in the US where income tax is withheld from the pay check. Work is done remotely.


According to Art. 15 I of the US-Germany double taxation treaty, it would depend on where the work is "executed". In general, the double taxation treaty very much seems to envision pre-digital work (e.g. physically going to a factory for a day). 

Does anyone have any experience with how German tax authorities are treating "the place where work is executed" in the new online world?


Many thanks in advance



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Your income is taxed based on where you reside for tax purposes, Germany in your case, not where you perform it.  You could do that work while vacationing in Spain too.  It would seem to me that Germany will tax the income that you earned for remote work in the US when you file your German tax return, and when you file your US tax return you will get a refund of the taxes withheld by the US employer.  You can generally set things up so that little or nothing is withheld on the US side to avoid this problem.  I expect @Straightpoop and/or @PandaMunich to be along soon to give us their 2 cents, for which we are always grateful as it‘s always worth $100 or more. 😂


Disclaimer  I am a tax hobbyist, not an expert.  So rely on a tax expert such as the above folks. 


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The US rules for determining the source of employment income ("US sourcing rules") are (I believe) the same as the German ones:


The "source" of wages is the geo-political place where the labor is performed upon which those wages are paid. (In other words if you are doing work on a project located in Bangladesh for an employer based in Botswana for wages paid in Rupees to a bank account in Bogata via a computer terminal in place where you can take a break and go out the door and shop at REWE where while standing in line you hear customers arguing the merits of Bayern München vs. Armenia Bielefeld in German it is highly likely that the geographical source of your wages earned from that computer work is Germany.)


However, these "sourcing" rules have limited impact on a US citizen who is tax resident in Germany.


Generally, (s)he will be taxed on those wages by the US based on his/her citizenship and by Germany based on his/her residence.


Art. 15 para. 2 contains rules that are designed to trump the respective treaty country's source rules on wage taxation jurisdiction (set forth in Art. 15 para. 1) where a short-term assignment would otherwise lead to the necessity of filing a tax return in more than one place.


Thus, if the wages meet the conditions of Art. 15 2 ) or 3 ) then only one of two treaty countries has the exclusive right to tax.


But, because of the so-called "Savings Clause" (Art. 1 4), Art. 15 2) or 3) has NO EFFECT on the right of the US to tax its CITIZENS or lawful residents (or former citizens or former residents) on income that according to Art 15 of the treaty could only be taxed in Germany. 


The end result is that:


1.  If Art. 15 2) gives the US the exclusive right to tax wages, Germany will exclude the wages from its tax base (but apply Progressionsvorbehalt to the otherwise taxable income of its tax resident).


2.  If Art. 15 2) gives Germany the exclusive right to tax wages, both Germany and the US will tax them as it normally would but the US will allow the US taxpayer to claim a foreign tax credit for whatever taxes may be owed to Germany.


3.  If Art. 15 1) gives both countries the right to tax - one on the basis of residence and the other based on source - then the residence country will give its taxpayer a credit for taxes paid to the source country.






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Thank you both so much for your swift and detailed replies! The outcome seems to be what I surmised but was hoping to be able to avoid ;)


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