In Germany, employee social security contributions are tax deductible as pension expenses, while employer social security contributions are tax-free from a German perspective. However, the legislator only had in mind employment relationships that are at home in Germany under social security law. However, this is not always the case with cross-border activities, as can be seen from the content presented above and the EU regulation.
This regularly creates problems when it comes to the question of how the employee's and employer's contributions to the Swiss pension scheme - AHV (old-age and survivors' insurance) - are to be treated for tax purposes. The German tax administration takes a very restrictive stance on this. She refers to a letter from the Federal Ministry of Finance (BMF) from 2016. In our opinion, this corresponds to the German Income Tax Act (EstG), but is not compatible with European fundamental rights.
Although Switzerland is not a member of the EU, a number of fundamental rights also apply in relation to Switzerland through the so-called bilateral treaties. The European Court of Justice (ECJ) confirmed this in 2017 and has since confirmed this in further rulings on a regular basis. Nevertheless, nothing changed in the attitude of the tax authorities. This ultimately led to legal proceedings before the Federal Finance Court (BFH), which agreed with the ECJ's view in its ruling of November 15, 11. This means that the German tax office must also retroactively take into account the pension expenses for Swiss funds such as AHV (old-age and survivors' insurance) in all open or still changeable cases. It is worth checking the tax assessments from the last few years again to see whether they can still be changed.
Tenor of the BFH ruling: The ban on deducting special expenses for pension expenses that are in direct economic connection with income from employment earned in Switzerland and exempt from tax in Germany violates the principles of free movement of workers and equal treatment guaranteed by the Agreement on the Free Movement of Persons (FZA). This also applies if the wages are not taxed in Germany due to the double taxation agreement (DTA) concluded between Germany and Switzerland.
The BMF, which refers to its letter from 2016, joined the proceedings. The judgment also acts against the highest financial authority in Germany and is therefore not just an individual decision. Nevertheless, the BMF has not yet repealed or changed its letter from 2016. According to the BFH's findings, the ban on deducting special expenses is likely to deter employees from working in Switzerland. The regulation in the German income tax law therefore violates the EU's Free Movement of Persons Agreement (FZA) with Switzerland. The provision according to which special expenses are deductible if the associated income is taxed in Germany is therefore also inadmissible in relation to Switzerland and the law on this point should therefore be understood differently than the tax administration including the BFH does.
The special expenses paid in Switzerland are to be treated for tax purposes in Germany in the same way as contributions to German social security. There is even an advantage if the income is. Since in Switzerland, unlike in Germany, there is no contribution assessment limit and contributions are therefore charged for the entire income, these can be higher than for a comparable employment relationship in Germany. However, the employer's contributions to compulsory insurance remain completely tax-free and the employee's contributions are fully tax-free Scope of special editions.
In its ruling of November 5.11.2019, XNUMX, the BFH also confirmed the regular obligation of the country of residence to grant all tax advantages that are linked to the personal and family situation. As an exception, something different only applies if the taxpayer earns all or almost all of his taxable income in the foreign country of employment and he does not receive any significant income in his country of residence. Exceptions to this principle are possible; However, this required an agreement between the states involved on mutual relations to prevent disadvantages in the relevant area. However, there is no such agreement between Germany and Switzerland.
Ultimately, the BFH wrote in the prayer book of the German tax administration and therefore especially the BMF that the jurisprudence of the ECJ should also be fundamentally observed with regard to the relationship with Switzerland. The BFH therefore has an impact that goes well beyond the decided procedure.
