Taxes on a British Army pension/salary

[bod 0]

Hi, my husband left the British Army last month after 22 years. He works now for a german firm, just like I do. We were told now, that he has to declare his army pension in our German tax declaration at the end of the year. Can anybody help, if this is true? And if it is, what amount does he have to declare? Before British tax or after? He gets it paid into his English account, so what exchange rate would we have to use?

Thanks!

Steffi

:huh:

[gideon 137]

strange that. if i remember rightly and i could be wrong as i'm not a tax consultant but if its taxed in the uk then he shouldnt have to pay taxes here on it. the uk still being an EU country and all that.

[Johnny English 3,071]

 

but if its taxed in the uk then he shouldnt have to pay taxes here on it

Obviously you dont get taxed twice. In theory I would have thought they would pay someone living overseas the GROSS amount once you have told the UK authorities, as of course you always pay tax at local level - so you could be living in Monaco, Germany or Hong Kong etc. (all different tax rates).

 

Then you just pay the tax locally.

 

Exception are normally property as the income from property is always taxed locally (e.g. UK), but then you just declare the tax paid and get a tax credit or debit over here accordingly.

 

So plan would be:

 

1. Get proper tax advice of course!

 

But I would personally:

 

1. Contact UK Army Pensions and tell them you are living overseas. My guess is income would then be paid gross.

 

2. Declare it as taxable income on my German tax form as usual at end of the year.

[OhFFS 3]

You forgot

 

3. Borrow a tank and visit the German taxman.

[White HEART Lane 0]

Under the EU taxation regulations, you are allowed to work up to 184 days in any EU country and pay tax in the country where you are being paid, not the "host" country. From day 185 your tax payments will be deducted from your salary and paid to your "host" country.

 

So, for an English citizen being paid in the UK, for 184 days you will be taxed under UK regime, and as soon as you hit the 185th day, your UK salary must be declared to the German tax authority and your tax will be calculated by and paid to the German state.

 

The day count doesnt include weekends away etc, only days you physically are present in Germany.

 

Speak to an accountant though for the real deal!

[Jeckel 15]

 

Obviously you dont get taxed twice.

That can happen actually. Double taxation is not unheard of. Obviously you'd have to be a complete idiot not to sort it out but it can happen . . . . . ;)

[Johnny English 3,071]

When I say "you dont get taxed twice" I mean legallly speaking. Obviously if you and the accountant are incompetent I guess you could pay tax any number of times!

 

There is an official "double taxation treaty" between Germany and the UK.

 

However if you earn UK taxable income (e.g. income from UK rented property), and you "would" have paid more tax on that income in Germany - you have to pay the extra over here!! All nice stuff.

[bod 0]

Thanks for all your repies.

I found out now, that under the double taxation agreement his pension is taxed indirectly, because it raises our tax rate.

 

Steffi

[Henribear 178]

On 29.6.2006, 13:04:05, gideon said:

strange that. if i remember rightly and i could be wrong as i'm not a tax consultant but if its taxed in the uk then he shouldnt have to pay taxes here on it. the uk still being an EU country and all that.

Someone needs to tell the German tax office. At the moment they are demanding my husbands pay slips from military time and then UKBC. specific years are last year in military and UKBC time 2014-2016. They Believe that because he was serving in Germany he should be paying german tax. Not only that, they have  started criminal proceedings even before they asked for the information. Pension has always been declared. Total nightmare.. Now we must pay for a tax solicitor even though the tax office have admitted that they have not asked for the information and that they can see everything has been declared.

[PandaMunich 16,704]

3 hours ago, Henribear said:

At the moment they are demanding my husbands pay slips from military time and then UKBC. specific years are last year in military and UKBC time 2014-2016. They Believe that because he was serving in Germany he should be paying german tax. 

Nope.

They think that he did not move to Germany just for this job and had no intention of returning to the UK and therefore want to tax it.

 

There is a clause in article 18 of the double taxation agreement (DTA) between Germany and the UK that assigns the taxation right on his salary to Germany, if: https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Internationales_Steuerrecht/Staatenbezogene_Informationen/Laender_A_Z/Grossbritannien/2010-11-23-Grossbritannien-Abkommen-DBA-Gesetz.pdf?__blob=publicationFile&v=3

• However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:
  a.) is a national of that State or
  b.) did not become a resident of that State solely for the purpose of rendering the services.

  

There is something that is hierarchically higher then the DTA, the SOFA agreement (NATO-Truppenstatut).

But the SOFA agreement has the same clause, only if he moved to Germany only because the army sent him here (no additional private reasons to move to Germany), will the UK salary not be subject to German taxation. 

 

SOFA (Agreement between the Parties to the North Atlantic Treaty regarding the Status of their Force): https://www.nato.int/cps/en/natohq/official_texts_17265.htm

Article X

1. Where the legal incidence of any form of taxation in the receiving State depends upon residence or domicile, periods during which a member of a force or civilian component is in the territory of that State by reason solely of his being a member of such force or civilian component shall not be considered as periods of residence therein, or as creating a change of residence or domicile, for the purposes of such taxation. Members of a force or civilian component shall be exempt from taxation in the receiving State on the salary and emoluments paid to them as such members by the sending State or on any tangible movable property the presence of which in the receiving State is due solely to their temporary presence there.

    

2. Nothing in this Article shall prevent taxation of a member of a force or civilian component with respect to any profitable enterprise, other than his employment as such member, in which he may engage in the receiving State, and, except as regards his salary and emoluments and the tangible movable property referred to in paragraph I, nothing in this Article shall prevent taxation to which, even if regarded as having his residence or domicile outside the territory of the receiving State, such a member is liable under the law of that State.

    

3. Nothing in this Article shall apply to 'duty' as defined in paragraph 12 of Article XI.

    

4. For the purposes of this Article the term 'member of a force' shall not include any person who is a national of the receiving State.

*********************************************************************************************************

 

Germany's highest financial court, the BFH (Bundesfinanzhof), goes by the indicator "intent to return" for deciding whether the SOFA agreement applies or not.

 

See this BFH ruling of 18.09.2012 (I B 10/12) "Unbeschränkte Steuerpflicht einer "technischen Fachkraft" nach NATO-Truppenstatut - Rückkehrwille" (= Unlimited tax liability of a "technical specialist" under NATO troop status - intent to return)": https://www.bundesfinanzhof.de/de/entscheidung/entscheidungen-online/detail/STRE201250653/

 

1. A "technical expert" within the meaning of the Supplementary Agreement to the NATO Status of Forces is not subject to unlimited income tax liability despite residence or habitual abode in Germany if he is only in Germany in this capacity; this is the case if it is recognisable from his overall circumstances that he will return to the State of origin or his home country after the end of his service (cf. BFH judgment of 9 November 2005, I R 47/04, BFHE 211, 500, BStBl II 2006, 374).
    
2. The necessary firm decision to return to the country of origin or the home country requires a fixed date with regard to the return after the end of the service. It is not sufficient to want to return at some point after the end of the service, the return must rather be in a certain temporal proximity to the end of the service.

 

*********************************************************************************************************

 

Taken from the IStR journal article "Die Besteuerung nach dem NATO-Truppenstatut und seinem Zusatzabkommen", Univ.-Prof. Dr. Heinz Kußmaul und Melanie Nothof, IStR 2018, 491: https://beck-online.beck.de/Bcid/Y-300-Z-ISTR-B-2018-S-491-N-1
 

• "The purpose of the tax regulations of the NATO Status of Forces and its supplementary agreement is to prevent members of the NATO armed forces and other natural personsfalling under this agreement from being placed in a worse position due to their stationing. This is achieved with the help of the so-called non-residence fiction according to Art. X, para. 1, sentence 1 of the NATO Status of Forces Act, which prevents the realisation of the facts of unlimited tax liability under section 1, para. 1, sentence 1 of the German Income Tax Act, provided the necessary will to return exists.
  If, however, the centre of vital interests has shifted during the deployment, e.g. due to a marriage with a German national, which generally precludes the intention to return to the sending state, a tax exemption of the income and remuneration from the employment relationship pursuant to Art. X, para. 1, sentence 2 of the NATO Status of Forces Act can be denied.
  However, since the required intention to return is an internal fact, an assessment of this is extremely complex and multi-layered. If this intention to return is denied, however, unlimited tax liability arises as a result of the establishment of residence or habitual abode. The only way to avoid the resulting double taxation of remuneration is through the respective DTAs, which increases the complexity of the taxation of members of the NATO armed forces."

 

--> the Finanzamt wants to tax his salary, since they think that he had unlimited tax liability (unbeschränkte Steuerpflicht) in Germany, see the red box in this flow chart, also taken from the Kußmaul article and they think that the DTA does not exempt his UK salary from German taxation because he also had private reasons for moving to Germany:

 

*********************************************************************************************************

 

There are 3 scenarios how this can end:

 

Scenario 1: You can prove that he moved to Germany only for his SOFA job and he had the intention to immediately return to the UK afterwards

The UK salary will neither be taxed directly by Germany, nor indirectly by Progressionsvorbehalt.

--> best solution for you, everything stays as it was.

 

Scenario 2: You can prove that he moved to Germany only for his SOFA job, but cannot prove that he had the intention to immediately return to the UK afterwards

The UK salary will not be taxed directly by Germany because of article 18 (1) of the DTA, but it will be subject to the "lesser" evil of Progressionsvorbehalt, i.e. it will raise your German tax rate on your other income.
For an example of Progressionsvorbehalt, please scroll down to "Progressionsvorbehalt" in here.
Please also read section 2 "Besonderheiten bei Mitgliedern ausländischer Streitkräfte" of  OFD Frankfurt/M. v. 03.01.2012 - S 2295 A - 25 - St 513: https://datenbank.nwb.de/Dokument/429103/
--> this solution is the "lesser evil". If you did not have any income apart from the UK salary, it will not have any ill effect at all, since Progressionsvorbehalt needs other income to exist so as to have an effect,

 

Scenario 3: you cannot prove that he moved to Germany only for his SOFA job

Germany will issue a Bescheid in which they will tax his UK salary.

Using that German Bescheid, you would have to get HMRC to give you back the UK income tax that you had already paid on it.

--> worst solution, not only will he owe German income tax, but also late interest on this extra German income tax (6% per year for interest periods up to 31.12.2018 and 1.8% for interest periods starting with 01.01.2019). 

 

In scenarios 2 and 3, he committed tax evasion, which can mean an extra penal fine, but I think the Staatsanwalt (= crown prosecutor in British English or district attorney in US English) will simply close the case without a fine, he/she has bigger fish to fry.

 

3 hours ago, Henribear said:

Now we must pay for a tax solicitor even though the tax office have admitted that they have not asked for the information and that they can see everything has been declared.

You don't need a solicitor, a Steuerberater will do (not me, I'm not accepting new clients).

[optimista 5,885]

Clause b) is incompréhensible to me. And I have a degree in languages 

[kiplette 8,712]

On 18/03/2023, 10:43:44, Henribear said:

 from military time and then UKBC

 

That's unusual certainly for the uniformed bit. Generally people are not hassled about that, because you literally have no choice about staying or going when push comes to shove. If he wanted to stay in Germany and HMG wanted him back in the UK, he'd have been gone, whatever was going on in his head/your lives.

 

Weird. Hope it works out. 

 

Also is there a point when it is too late for them to question this stuff? Yours seems quite long ago in the scheme of things.

[Henribear 178]

On 19.3.2023, 22:51:25, kiplette said:

 

 

 

Also is there a point when it is too late for them to question this stuff? Yours seems quite long ago in the scheme of things.

Yes its 5 years but they have got it into their heads that because he worked as military here that he has been avoiding taxes. All we get is " we do not understand". They have all the information about where tax was paid, the SOFA agreement, it has not been accepted. As miitary who chose to stay and move to other parts of the country where miitary were not present, this is now becoming a problem

[Henribear 178]

We've been given a hefty tax bill of several thousand and told we have a month to pay,.  We don't have this money. We have yet to get this demand to the steuerberater but can someone enlighten to me to their threat. If we do not pay in a month they will empty our bank account until it is paid. They will also take my husbands small German pension.  How are we meant to pay mortgage,  insurances,  utilities,  food etc. I don't want to go into details about our finances but we do support our daughter with cancer and her children in uk plus a son in uni here. Our home is almost mortgage free. A lot of stuff that the tax office have come up with has been incorrect eg saying we had dual citizenship, which we don't. 

[Chelski 1,480]

So maybe make an urgent appoinment with your local Finanzamt and sit down and talk about it?

 

Explain your personal situation and their mistakes.

 

They're the experts who decide, not us on TT.

[Henribear 178]

Trying to talk to them has got us no where so far. We found a steuerberater who pointed out some of their faults. He will look at their calculations on Tuesday.  I was just trying to find a bit of info so I could sleep tonight. 

[kiplette 8,712]

@Dusty

 

The Legion may want to be aware of this situation just in case it becomes more widespread, especially if the work done by Kußmaul and Nothof linked to by PandaMunich above is being read by multiple Finanzamts. 

 

Although equally, poking the wasps nest in an attempt to head off problems might well result in a complete melt down for everybody, so maybe the less said the better.

 

Awful for Henribear.