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No entitlement to higher tax relief on pension expenses

No entitlement to higher tax relief on pension expenses


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Federal Constitutional Court: Examination only possible after retirement

If taxpayers fear double taxation in connection with their retirement provision, they can only have this checked under constitutional law as a pensioner. With two decisions published on Wednesday, July 20, 2016, the Federal Constitutional Court in Karlsruhe dismissed appeals against the taxation of pension expenses during active working life (file number: 2 BvR 290/10 and 2 BvR 323/10).

In the first case, an employee brought an action against the taxation of his contributions to the statutory pension insurance scheme. In the second case, a freelance tax consultant wanted his contributions to the professional pension scheme to remain tax-free as "anticipated advertising costs".

Both fear double taxation. That would be the case if they now saved taxable income for retirement and then taxed it again as income later when it was paid out.

The background is a ruling by the Federal Constitutional Court on March 6, 2002. At the time, there was criticism of unequal treatment between civil servants' pensions and statutory and other pension payments (file number: 2 BvL 17/99).

The legislator reacted to this with the retirement income law of July 5, 2004. The taxation of civil servants' pensions was retained. In the case of statutory pensions and professional care for the self-employed, a change from the so-called upstream to the downstream taxation will take place in several stages by 2040. This means that an increasing proportion of pensions will be taxed “afterwards” when they are paid out, from 2040 then fully. In return, an increasing proportion of contributions to statutory pension insurance or other pension schemes is deducted from taxable income. To this extent, the pension contributions are no longer payable from the already taxed income and are thus exempt from the "upstream" taxation.

The Federal Constitutional Court has already ruled that it is necessary and therefore constitutionally unobjectionable that the unequal treatment criticized in 2004 persists in the transition phase (decisions of 29 and 30 September 2015, file number: 2 BvR 1066/10, 2 BvR 1961 / 10 and 2 BvR 2683/11; JurAgentur notification from December 1, 2015).

With its new decisions, the Federal Constitutional Court ruled that other unequal treatment must also be accepted in the transition phase, as long as double taxation does not occur.

In general, this can not only be achieved by exempting today's pension expenses, but also by exempting future pension payments. Upstream and downstream taxation would therefore have to be coordinated accordingly. "The prohibition on double taxation (therefore) does not entitle you to a certain deductibility of the contributions in the development phase."

Double taxation is particularly conceivable for employed persons who will retire from 2039 to 2043. Whether or not this happens always depends on the individual case. Therefore, a constitutional examination is only possible at retirement age.

Furthermore, the Karlsruhe judges confirmed the capping of the upstream tax deduction for pension costs to EUR 20,000 and EUR 40,000 annually for spouses and life partners. The legislature justified this with the avoidance of abuse, the Federal Constitutional Court ruled in its resolutions of 14 June 2016, which have now been published in writing. Mwo / fle

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