Why is double taxation allowed?

Are our pensions really double taxed?

Dear Mr. Heine,
As tax consultants and auditors from the far north, we have dealt more intensively with the subject of double taxation of pensions in the last few weeks - after the amount of Plusminus. It should first be noted that the unconstitutionality of the double taxation of pensions has been confirmed. Nevertheless, there are many questions, as you have already shown, how the double taxation of pensions is to be calculated. There is also a BFH judgment from 2016, which deals with many questions without arriving at a concrete result.

Basically, we do not currently assume that double taxation will always occur with every pensioner, but the probability of double taxation increases with the later year of retirement.

In 2016, the BFH stated that it is not absolutely necessary that all previous tax assessments of the taxpayer must be submitted, but that proof based on the pension payment data could also be sufficient. Perhaps the rejection of the BFH judgment will lead to new findings at the tax court level.

The case law currently assumes that a comparison is required as to which pension payments were made from taxed income and which were tax-deductible. Whether this calculation system is correct is a matter of dispute. Not all pension points that a pensioner “earns” were generated from their direct income.

I also consider the extrapolation to an average life expectancy of a pensioner to be at least worth discussing from a business point of view. In my opinion, there should be a relationship between tax-free and taxable contributions to the total contribution. This percentage ratio would then be decisive for future taxation. In its basic system, this approach corresponds to the taxation according to the special provision of § 22 EStG, in those cases in which amounts above the tax assessment base have been paid for 10 years. In these cases, part of the pension is taxed less.

We are currently still in the process of carrying out a more detailed analysis of the different case constellations for determining double taxation of pensions. Unfortunately, every pension case has its special features, so that it takes a lot of effort to specifically prove the double taxation of the pension. In my opinion, it is also to be expected that the tax court or the tax office will remedy an obvious double taxation of pensions without “carrying” these cases to higher authorities.

A very interesting topic, which will certainly keep us all busy for a long time to come.

With best regards
Have a pleasant Easter week
Wolfgang L.