Finanzhof on double taxation: Future pensioners affected by a higher tax burden


Finanzhof on double taxation
Future retirees affected by a higher tax burden

The highest tax court also dismisses the second lawsuit for alleged double taxation of a married couple – because of insignificance. However, the judges are calling for far-reaching policy changes to be made to the taxation of pensions. Because future generations could look into the tube.

The Federal Fiscal Court in Munich has also dismissed a second lawsuit against pension taxation, supported by the taxpayers’ association. The plaintiffs would not be violated in their rights, decided the Xth Senate of the highest German tax court in its judgment.

A former dentist from Hessen and his wife had sued, accusing the tax authorities of illegally double taxing their pensions. In addition to the statutory pension, the man received around 20 other private pensions. This case was a special case because of the large number of private pensions.

For other controversial cases, the decision is relevant that due to the income share taxation applicable to private pensions, there is already systematically no double taxation for private pensioners. Shortly before, the Federal Fiscal Court had already dismissed the lawsuit of a former tax advisor in a first parallel proceeding.

In principle, the Federal Fiscal Court sees an excessive tax burden on many pensioners in Germany in the coming years. According to the assessment of the Xth Senate, neither the basic allowance nor health and long-term care insurance contributions may be included in the calculation of the tax-free portion of the pension. This does not have an immediate impact, but it could be large in the future. Because the Federal Fiscal Court is suggesting that the Federal Ministry of Finance should change the previous practice in pension taxation.

Finanzhof is entering new tax territory

The basic allowance serves to secure the subsistence level and should not be used a second time as a tax-free pension. “Our answer is no,” said Senate Chairwoman Jutta Förster on this question, which has been debated among tax lawyers for almost 20 years. Since 2005 there has been a gradual change in pension taxation, which should not be completed until 2040. Before 2005, the employee’s pension contributions were taxed “upstream”. Since then, the changeover to a “downstream” taxation of the pension paid out has been ongoing, analogous to the pensions for civil servants.

The Federal Fiscal Court has nothing fundamental to complain about: “The transitional regulation does not violate the principle of equality,” said Förster. What is disputed, however, is the specific design of the 35-year transition phase. In this regard, the Federal Fiscal Court has now broken new tax territory. During this period, the taxation of the pension paid rises gradually, while the tax burden on pension contributions decreases during working life. These will be completely tax-exempt from 2025, the pensions paid must be fully taxed from 2040.

However, the contributions will only be fully deductible for 15 years beforehand. Since a working life usually lasts much longer than 15 years, critics have argued for years that this fact alone results in a prohibited double taxation of pensions and contributions.

The prohibition of double taxation imposed by the Federal Constitutional Court means that every pensioner must receive at least as much tax-free pension as he has previously paid in contributions from taxed income. And according to the calculation parameters of the Federal Fiscal Court, this will no longer be guaranteed for many pensioners in the future, as Senate Chairwoman Förster explained.

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