Taxation of a severance payment when moving residence abroad...
January 6, 2015 | 35,00 EUR | answered by Anton Pernitschka
Good day: Here is my situation..
My employment is terminated on the initiative of the employer for operational reasons by mutual agreement as of 30.09.2015. Until that date, I am released from work with continued payment of my current salary. An severance payment is agreed upon for 09/2015. (Tax class 1, no children, no other income)
My rough plan is to give up my residence in Germany around October 2015, in order to choose Thailand as my residence for at least 6-7 months. (Existing double taxation agreement) I would like to agree with my employer to postpone the payment of the severance until March 2016. Since I would have my residence in Thailand for at least 183 days, the severance would not be taxed in Germany, but rather at reduced tax rates in the foreign country.
1) Can you confirm my limited knowledge in this area with current case law, and are there any additional conditions/requirements to consider in this approach?
2) Can the tax office accuse me of abusive tax planning if I return to Germany after receiving the severance payment, or is this a legitimate form of tax optimization?
3) Can my rental agreement as a tenant remain valid during my stay abroad in order to move back into the same apartment upon my return?
Thank you for your professional explanations...
Dear inquirer,
In the context of an initial consultation and your fee commitment, in compliance with the regulations of this forum, I would like to answer your questions.
Article 15 (1) sentences 1 and 2 of the Double Taxation Agreement (DBA) stipulate that remuneration received by a person residing in Thailand from dependent personal services can only be taxed in Thailand.
The Federal Fiscal Court (BFH) determined in 2009 (BFH of 02.09.2009 - BStBl II 2010, 387 and 394) that a severance payment is not subject to taxation under Article 15 or Article 4 of the DBA, meaning that a severance payment does not necessarily have to be taxed in Germany. This is because a severance payment is not considered as salary or wages for work performed in Germany, but rather as compensation for the loss of employment.
Reaching an agreement on severance in the form of a termination agreement does not automatically create a tax liability. Therefore, it is possible for an employer and employee to agree on the termination of employment along with a severance payment, with the agreement that the payment will be made in the following year. This opens up the possibility of relocating one's residence and meeting the requirement of having lived abroad for more than 183 days and falling under the DBA.
The tax office cannot argue using § 42 AO (abuse of legal structuring opportunities) because the Federal Fiscal Court has ruled in your favor in other cases (as mentioned above).
Since the determination of a person's residence (domicile or habitual abode) is crucial according to the DBA, an existing lease agreement in Germany is likely not decisive.
The response was based on the information provided by you. Missing or incorrect information regarding the actual circumstances may affect the legal outcome.
Sincerely,
Anton Pernitschka
Tax advisor
