Germany: Employee has to reclaim prior year tax paid in error by their employer by filing a tax return

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Ordinarily German employees do not submit tax returns in respect of employment income and it had been hoped that employers could correct their tax errors through payroll.

The German Federal Finance Court has ruled that where an employer has wrongly calculated, withheld and paid wage taxes, there is a legal obligation on the employer to adjust the incorrect deduction.  

However, if the tax year in which the incorrect deduction was made has ended, the Court rules that the employer can no longer make the necessary adjustment.  In such cases, the employee will have to reclaim the tax taken in error through his or her personal tax declaration.

Commentary

The Court has ended the practise that employer’s simply deal with tax withholding errors in a previous year through a payroll adjustment.  If they do the monies repaid will be treated as taxable salary.  It is unfortunate for the employee that they will be put to the expense of filing a complex German tax return in order to correct their employer’s errors.

Resources

German Federal Finance Court: Decision dated 17 June 2009 (VI R 46/07)

For further information or to discuss the issues raised, please contact Joachim Menz (joachim.menz@keller-menz.de) 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.  www.keller-menz.de

Disclaimer

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