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Progression clause

June 19, 2013 | 35,00 EUR | answered by Steuerberater Thomas Textoris

Good morning,

I would like to explain my situation to you in advance:

I lived separately from my husband until 30.11.2012, my husband lived in Spain and worked there. I lived in Germany with my daughter and also worked here.

The tax office assigned me tax class 2 and full child benefits, as there was no other option for this situation.

My husband paid the legally required tax rate in Spain, where there are no tax classes.

It was the case that we spent every weekend, all long weekends, and holidays together, with only a handful of exceptions, meaning either my husband or I would fly to be with each other.

Now, as of 1.12.2012, my husband has taken up a position here in Germany, and we now live in the same household.

We diligently filed our tax returns, but did not anticipate the progression clause.

The tax office now wants the income tax assessment from Spain.

Now to my questions:

When the progression clause is calculated, can we claim double household expenses and flight costs, for example?
Secondly, I have a second residence in Madrid, meaning I was still registered there last year, as was my daughter. Since my husband and I rented an apartment together there.

My husband also filed his tax return in Spain. However, the system is different there than in Germany. There, there is only the option of joint or separate taxation, separate for singles and joint for married couples.

Since my husband and I were still married, he filed our taxes jointly in Spain.

The question now is, could the German tax office have a problem with this? The tax office valued me at 0 euros, as if I had not worked. I would appreciate it if you could reply to me as soon as possible, as the situation is very urgent.

Steuerberater Thomas Textoris

Dear questioner,

In the context of an initial consultation and your fee involvement in accordance with the regulations of this forum, I would like to answer your question.

In principle, you are considered resident in both states, as you have a residence in both Spain and Germany (Art. 4 (1) Germany/Spain Double Tax Agreement). However, your family residence, i.e. the center of your life interests, is still located in Germany. Therefore, according to Art. 4(2) of the Double Tax Agreement, you are only considered resident in Germany. As a result, as spouses, you are subject to unlimited tax liability in Germany according to § 1 (1) German Income Tax Act (EStG).

Art. 14 of the Double Tax Agreement states that your husband's income from employment in Spain is taxable. To avoid double taxation, Art. 22(1) of the Double Tax Agreement provides that income in Spain is exempt from tax in Germany.

However, in Germany, this income is subject to the progression clause according to Art. 22 (2) of the Double Tax Agreement, § 32 b (1) No. 3 EStG. The term "income" includes income as defined in § 2(2) No.2 EStG.

Income is the excess of income over deductible expenses. In your case, the progression income must be reduced by the deductible expenses.

The costs for maintaining a second household (§ 9 (1) No.5 EStG) are deductible. In the context of maintaining a second household, a weekly trip to the family home is deductible. The corresponding flight costs can be claimed.

Yours sincerely,

Thomas Textoris
Tax consultant