Germany: 254. Domicile and Centre of Vital Interests

Martin Ribbrock, KPMG Frankfurt

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.

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