The German Federal Ministry of Finance on 5 August 2024 published a circular regarding a recent Euro-pean Court of Justice decision, providing that applications for voluntary income tax filings must be granted if the applicant is a national of an EU or an EEA member state and is a tax resident of Switzer-land or has their habitual abode in Switzerland.
Under the German tax system, nonresident taxpayers – those without residence or a habitual abode in Germany -- satisfy their tax liability on income from employment through the payroll tax deduction in Germany. However, these nonresident taxpayers may apply for an income tax assessment to deduct expenses (such as income-related expenses) and to credit payroll tax withheld under the tax deduction procedure, which may result in an income tax refund, but only if they are nationals and residents of a EU or EEA member state. EU/EEA nationals who have their residence or habitual abode in Switzerland could not benefit from such an assessment.
The European Court of Justice decided that this current legal situation violates the Agreement on the Free Movement of Persons of June 21, 1999. In the court’s opinion, this fact constitutes inadmissible discrimination against employees living in Switzerland.
Because the relevant section in the German income tax act has not yet been amended, the Ministry of Finance decided on 5 August 2024 to create a transitional regulation by issuing instructions to the local tax offices. This transitional regulation stipulates that applications will now also be granted if the applicant is a national of an EU member state and has their domicile or habitual residence in Switzer-land. This regulation will be applicable to all open cases.
Christiane Anger
BDO in Germany
Under the German tax system, nonresident taxpayers – those without residence or a habitual abode in Germany -- satisfy their tax liability on income from employment through the payroll tax deduction in Germany. However, these nonresident taxpayers may apply for an income tax assessment to deduct expenses (such as income-related expenses) and to credit payroll tax withheld under the tax deduction procedure, which may result in an income tax refund, but only if they are nationals and residents of a EU or EEA member state. EU/EEA nationals who have their residence or habitual abode in Switzerland could not benefit from such an assessment.
The European Court of Justice decided that this current legal situation violates the Agreement on the Free Movement of Persons of June 21, 1999. In the court’s opinion, this fact constitutes inadmissible discrimination against employees living in Switzerland.
Because the relevant section in the German income tax act has not yet been amended, the Ministry of Finance decided on 5 August 2024 to create a transitional regulation by issuing instructions to the local tax offices. This transitional regulation stipulates that applications will now also be granted if the applicant is a national of an EU member state and has their domicile or habitual residence in Switzer-land. This regulation will be applicable to all open cases.
Christiane Anger
BDO in Germany