Law & Numbers - News Tax

Judgment dated Dec 9, 2008 of the Federal Constitional Court

12.12.2008 (Germany)

Amended statutory regulations on the "commuter tax allowance" unconstitutional

Until 2006, the costs for travelling between home and workplace could be deducted from income liable to income tax as income-related expenses pursuant to 9 of the Income Tax Act (Einkommensteuergesetz - EStG) or as business expenses pursuant to 4 EStG. As a general rule, the deduction took the shape of a flat rate per working day and kilometre travelled to the amount of EUR 0.30 immediately before its abolition (mileage allowance, commuter tax allowance); the allowance was independent of the cost actually incurred.

With effect from 2007, the legislature provided in 9.2 sentences 1 and 2 EStG (and correspondingly in 4.5a EStG) that the expenses incurred for travelling to one's regular workplace are no income-related expenses (sentence 1), but that "to cover increased expenditure", a flat rate of EUR 0.30 was to be allowed "like work-related expenses" for journeys from the 21st kilometre travelled (sentence 2). In the legislative procedure, the fact that the amendment of sentence 1 was tantamount to the introduction of what is known as the "factory gate principle" was justified by putting forward the objective of a necessary consolidation of the excessively indebted state budget (through expected increases in revenue of approximately EUR 2.53 billion); the remaining deductibility of longer distances travelled was justified by referring to it as a complementary hardship arrangement.

As regards the submissions made by the Finance Courts (Finanzgerichte) of Lower Saxony and the Saarland and by the Federal Finance Court (Bundesfinanzhof), the Second Senate of the Federal Constitutional Court ruled that for lack of a reasoning which is viable under constitutional law, these amended statutory regulations are not compatible with the requirements placed by the general principle of equality under Article 3.1 of the Basic Law (Grundgesetz - GG) on a consistent structure of decisions that concern income tax burdens, and that they are hence unconstitutional. Accordingly, the legislature is obliged to retroactively eliminate the unconstitutionality from 1 January 2007 by reorganising the legal situation.

Until a new statutory regulation is adopted, the flat rate under 9.2 sentence 2 of the EStG is to be applied - provisionally - without restricting its application to the 21st kilometre and above of distances travelled.

For further information contact us directly under: b.c.gerow@egsz.de





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