Contribution to a home country pension scheme may attract relief in future.
According to § 3 Nr. 63 EStG (German Income Tax Law), contributions to pension funds, pension schemes and insurance companies in the EU – as well as possibly in third countries – can be free of any benefit in kind charges if, with regard to insurance law, the foreign pension institution or the foreign insurance company is authorised in respect of employees in German establishments (cf. Rz. 274 of the statement of the German Federal Ministry of Finance dated 31st December 2010).
At present, the German federal government and the federal states are considering whether contributions to a foreign pension institution, which are paid in the context of posting employees to Germany, may also be paid tax-exempt according to § 3 Nr. 63 EStG. This is irrespective of whether the pension institution is authorised to perform its duty in Germany with regard to insurance law
On the basis of the discussions between the German federal government and the federal states, the tax authorities are deferring opposition proceedings against additional claims of wage tax/liability assessments of wage tax and income tax assessments until resolution on the legal question throughout Germany.
Foreign pension institutions – as well as German pension institutions - have to meet the general requirements of a company pension scheme (e.g. protection against at least one biometric risk) as well as the particular requirements for a tax exemption of contributions according to § 3 Nr. 63 EStG (e.g. benefited form of payment) according to the criteria valid in Germany.
Therefore, applications for stay of execution can only be granted if foreign pension plans meet the criteria of § 3 Nr. 63 EStG (e.g. lower limit of age, group of beneficiaries, form of payment; cf. Rz. 263 ff of the statement of the German Federal Ministry of Finance (German BFM) dated 31st December 2010).
Regional Finance Office Rhineland, 6th April 2011 - brief information income tax 16/2011
NWB DoklD: FAAAD-80481
For further information or to discuss any of the issues raised, please contact Joachim Menz on +49 89 2422 300.