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In article no. 173, we reported on the ruling of the German Federal Constitutional Court of 10 November 1998 declaring German income tax law unconstitutional in certain respects with regard to families with children.

The Family Assistance Act of 22 December 1999 (BStBl I 1999, 2552) makes what the government believes are the changes necessary to bring German law into compliance with the high court ruling.

The present law makes no change in the standard deduction allowed to single parents under § 32 (7) EStG, which must be revised by 1 January 2002 according to the Federal Constitutional Court ruling.

The essential changes made are as follows:

• Introduction of a new § 53 EStG providing that deductions ranging from DM 3,732 for 1983 to DM 6,168 for 1995 are to be allowed for each dependent child. If the amount previously allowed is less than the amounts fixed in § 53 EStG, the difference is allowed as an additional deduction.

• Government child support payments received for the years in question must be recalculated as deemed deductions for purposes of the above calculation. In other words, the tax-free support payment must be converted into a deduction amount which would have yielded the same net benefit to the taxpayer in question.

• The above applies to all assessments which are still open or which are provisional as to the child support deduction. The government apparently believes that the child support system in place from 1996 onwards is not constitutionally objectionable.

• From the year 2000 on, two standard deductions (§ 32 (6) EStG) will be available with respect to children (irrespective of actual cost incurred):

i. A child support deduction of DM 3,456 per parent and child to cover the child's minimum standard of living (Kinderfreibetrag), and

ii. A deduction of DM 1,512 per parent and child for child care and attention (Betreuungsfreibetrag).

• The previous possibility to deduct actual child care costs (§ 33c EStG) is abolished.

• The two standard deductions are, like the previous child support deduction, alternative to government child support payments. That is, they are taken into account in determining taxable income only where the resulting tax reduction exceeds the sum of tax-free child support payments received.

• Government child support payments are increased in 2000 for the first and second child from DM 250 per month per child to DM 270 per month per child. Support payments for the third child remain at DM 300/month and those for children four and over remain at DM 350/month.

• The Family Assistance Act also contains Phase II (2000) and Phase III (2002) of the tax reform measures reported on in article no. 166 sec. 5 in connection with the 1999 Tax Relief Act for the Years 1999/2000/2002 (increases in the zero bracket amounts, reductions in the initial and maximum income tax rates and in the maximum rate for commercial business income, more gradual tax rate progression). The increase in child support payments from 2000 on replaces the increase originally planned for 2002.


For further information, please send a fax or an e-mail stating your inquiry to KPMG Frankfurt, attn. Christian Looks: Fax (0)69-9587-2262, e-mail You may also send an e-mail to KPMG Germany by clicking the Contact Contributor button on this screen.

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