Severance payments in international tax law

The same applies to waiting compensation and compensation payments for non-competition clauses. Although these are the result of the previous activity, they are not paid additionally for the previous activity, but rather for the future omission. Like severance payments due to the termination of an employment relationship, they cannot therefore be assigned to any activity. According to Article 15 of the OECD-MA, the current country of residence would therefore have the right to tax this type of compensation.

But that didn't suit the German tax authorities. He ensured a change to the German income tax law and subsequently commented on this himself in a letter to the BMF. However, the respective DTAs have not been changed, so that the old legal situation actually continues to apply due to the priority of international agreements. In 2018, the Federal Ministry of Finance (BMF) issued a letter on the taxation of wages with a foreign connection that is binding for the tax administration but not binding for taxpayers. Almost every detail is covered in 95 hard-to-read pages. With regard to severance payments, the BMF takes the view in TZ 220 ff. that severance payments for job loss are to be taxed pro rata in the countries in which the work was physically carried out. But other countries see it completely differently, such as France. After all, the BMF letter confirms that the severance payment was paid for the loss of a job and not for the performance of an activity. It is therefore already questionable whether severance payments are even covered by the scope of Article 15 DBA.