Germany: Agreed position on the taxation of redundancy payments as between Germany and Belgium, the Netherlands and Switzerland not valid

Posted on 10th January, 2009

Estimated reading time 3 minutes

The German court rejects the agreement made between national fiscal authorities as non-binding thereby abandoning the previously understood tax treatment.

The German Federal Finance Court has ruled that redundancy payments received by the employee after termination of the employment contract are taxable in the country where the employee is resident (BFH, Urt. v. 02.09.2009, I R 111/08 and I R 90/08).

Therefore the legal situation in Germany is contrary to the legal situation in Switzerland and Belgium where redundancy payments are taxable in the country where the employees work performance took place.

The fiscal authorities in all three countries therefore made mutual agreements stipulating that in case of non- taxation the country of former work performance has the right for taxation.

In the one case an employee was working in Germany.  After termination of the employment contract the employee moved to Switzerland. The other case dealt with an employee who lives in Belgium and was working in Germany. After termination of the contract both employees received a redundancy payment.  Because of the different handling of taxation of redundancy payments in the countries the situation of non-taxation occurred.  In accordance with the mutual agreement Germany got the right for taxation of the redundancy payments.

However, the German Federal Finance Court is of the opinion that a mutual agreement concluded only between the Fiscal Authorities of the countries has no legal basis to adjust the Tax Treaty between the countries.  Such a mutual agreement can only show effect for the fiscal authorities of the countries but not for the jurisdiction. Without a legal legitimation an adjustment of the Tax Treaty for the disadvantage for the tax payer is not possible.  The result of the decisions is that a redundancy payment is taxable in the country where the employee is resident unless the Tax Treaty itself has a different ruling.

A similar agreement has been concluded between Germany and the Netherlands.

For further information or to discuss the issues raised, please contact Joachim Menz ( on +49 89 24 22 30 0.

This article was produced by, and re-produced with kind permission of, our correspondent firm in Germany, Keller Menz Rechtsanwälte.

Keller Menz


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