For editorial cut-off date, disclaimer, and notice of copyright see end of this article.
Individuals with either a domicile or their habitual abode in Germany are subject to German tax on their worldwide income (§ 1 (1) EStG). In its judgement of 24 January 2001 (I R 100/99 – IStR 2001, 349), the Federal Tax Court (FTC) reaffirms its consistent decisional law that individuals with a German domicile are subject to tax in Germany on their worldwide incomes whether or not they have their centre of vital interests in Germany.
The taxpayer was apparently a German national who had moved to Hong Kong after completing his studies as an engineer and lived there predominantly ever since. The taxpayer owned two houses in Germany and maintained a fully furnished dwelling in one of these houses that was available for his use at any time. The unit comprised 297 m2 of living space, making it quite sizeable by any standards. At issue were taxes owing for the year 1996.
The FTC reaffirmed its consistent decisional law that any fully furnished dwelling owned by the taxpayer, available for use at any time and used in fact during the year in question, creates a domicile in the sense of § 8 AO irrespective of the length of time during which the dwelling is used. § 8 AO reads: "An individual has a domicile where he possesses a dwelling under circumstances from which one may infer that he will retain and use the dwelling."
Since no tax treaty was in effect between Germany and Hong Kong for the year at issue, the taxpayer based his case primarily on constitutional grounds. The lower court ruled in his favour (Baden-Württemberg Tax Court, EFG 2000, 72). The lower court agreed with the taxpayer that Germany could not constitutionally tax an individual on his or her worldwide income by reason of a German domicile if the individual also maintained a domicile in another country where the individual's centre of vital interests was located. In effect, the lower court applied principles similar to the tie-breaker rules of the OECD model income tax convention (cf. article 4 (2) OECD model treaty) even though no tax treaty was in force with respect to the specific case.
The taxpayer has appealed the FTC's decision to the German Federal Constitutional Court.
Editorial cut-off date: 20 March 2002
Disclaimer and notice of copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. KPMG Germany in particular insists that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note that the article is current only through its editorial cut-off date shown immediately above (not to be confused with the later date as of which the article was placed online – the date appearing at the article's outset). Related developments subsequent to the editorial cut-off are not necessarily reported on in later articles. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While KPMG Germany's articles are carefully reviewed, it can accept no responsibility in the event of any inaccuracy or omission. Any claims nevertheless raised against KPMG Germany on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Germany (KPMG Deutsche Treuhand-Gesellschaft AG). No use of or quotation from the article is permitted without full attribution to KPMG Germany and the article's stated author(s), if any. Distribution to third persons is prohibited without the express written consent of KPMG Germany in advance.
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