Taxation of severance payments from German companies for residents in Brazil
I have been employed by a large German automotive company for 27 years, the last 3 years of which as an EXPAT in the USA. Therefore, I am currently subject to limited tax liability in Germany. Since I have no income other than my salary that is subject to limited tax liability, I am currently not filing a tax return in Germany and am taxing my entire income in the USA. The entire process is handled by my employer's tax consulting firm and is confirmed as such.
My employer has now made me an interesting offer for early retirement following my assignment. I can resign as of December 31, 2020, and my severance package would be paid out as a lump sum in January 2021.
The employment relationship ends as stated in the contract: "as a termination agreement for early retirement at the instigation of the company for operational reasons by mutual agreement. In compensation for the termination of the employment relationship, the employer pays a severance package in the amount of xxxx."
I do not plan to return to Germany after my resignation, but to move directly from the USA to Brazil. I assume that I will continue to be subject to limited tax liability in Germany, as I will have no income other than the severance package.
My employer insists that I am still subject to tax in Germany on the severance package according to §49 EStG (1) 4d. He argues that of the 27 years of my professional life, I worked 24 years in Germany, and therefore this portion of my severance package is subject to limited tax liability in Germany, with only the portion of the severance package for the time abroad being taxed in the USA, as that is where I worked. However, the portion of the severance package subject to tax in Germany can be taxed according to the fifth rule. Therefore, my employer reserves the right to withhold 50% of the severance package as security until the tax situation is finally clarified. Furthermore, the severance package is to be taxed in Brazil as a lump sum on my part (due to no double taxation agreement), with any tax paid in Germany and the USA potentially being offset.
As a layman, I interpret the situation differently and believe that neither the German nor the US government has the right to taxation, but only the Brazilian government where I intend to live from 2021. On the other hand, my employer is a global corporation and its tax department should know exactly.
Is my employer correct in his interpretation here? What tax planning options do I have here depending on whether my employer is right or wrong? Would the answering tax advisor represent/advise me for a fee if my employer's approach to taxation is incorrect? My employer has indicated that he would be happy to discuss his position with a tax advisor.
Thank you.
