Double taxation after return to Germany.
May 5, 2012 | 45,00 EUR | answered by Wirtschaftsprüfer André Hintz
We (married couple) have been informed that in the event of changing our main residence from Germany to Austria, a final assignment of tax liability according to the double taxation agreement will only occur after a longer period of time, for example, after 5 years.
If we or one spouse were to move back to Germany before that, for example, for personal reasons, Germany could claim a tax liability for the time spent abroad and demand additional taxes to be paid in Austria, even if we have already paid taxes there, as if we had never moved away.
This could lead to a lengthy legal dispute or a so-called mutual agreement procedure, with corresponding legal uncertainty, time and cost implications, and the obligation to "top-up" taxes in Germany, at least initially or partially.
Is this actually common practice or just a theoretical possibility? Are there any experiences with mutual agreement procedures and what length of stay is generally considered by the German tax authorities as the limit for a clear tax residency assignment in Austria?
Dear inquirer,
I would like to answer your question within the framework of an initial consultation and based on your fee commitment, along with the rules of the online portal. My response relates to the situation you have described.
Firstly, it is questionable whether you are subject to unlimited, limited, or extended limited tax liability in Germany.
Germany follows the principle of worldwide income if you are subject to unlimited tax liability. The requirement is that you have your residence or habitual abode in Germany. In general, it can be assumed that after 183 days in Germany, unlimited taxation will occur with your total income earned (domestic and foreign).
Limited taxation occurs if the residence or habitual abode is in another country. If you continue to earn income in Germany, the double taxation agreement between both countries will determine which country has the right to tax. However, with exceptions, you will most likely be subject to tax in Germany with your German income and in Austria with the remaining income.
It should be noted that moving to another country can also trigger taxation, for example, with company shares or when business assets are exempt from German taxation.
Extended limited tax liability arises if you have been subject to unlimited tax liability in Germany for 5 years within the last 10 years (this does not have to be continuous). Another requirement is moving to a low-tax country.
I am not aware that Austria is a low-tax country in terms of income tax, so there should be no extended limited tax liability for income tax. However, since Austria has abolished inheritance tax, extended limited tax liability exists in this area.
Income tax is an annual tax that taxes all income earned in a year. I am not aware of any taxation of previous years when you return to Germany. However, if you move abroad within a year, you may be subject to both unlimited and limited tax liability.
This can lead to conflicts in individual cases, as both countries follow the principle of worldwide income. In that case, you should document well when you earned which income. So that, if you are subject to unlimited tax liability in Germany again, you can prove that you earned the income during the period of unlimited tax liability or during the other period.
I hope my explanations have been helpful and remain
Yours sincerely,
André Hintz
Tax advisor
