Germany federal fiscal court demands changes to pension taxation
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Germany federal fiscal court demands changes to pension taxation

Germany’s Federal Fiscal Court, the Bundesfinanzhof, demanded changes Monday to pension taxation to avoid future double taxation of retirement savings.

Prior to 2005, pensions had been basically tax-exempt because contributions came from taxed salaries. Under a 2005 law change, pension contribution payments gradually become tax-free. However, the taxable share of the pension increased. Because of the change, there is the potential of double taxation during the transition period if the tax-exempt portion of the pension is less than the contributions made earlier from taxed salaries.

A married couple who were assessed together for income tax purposes in 2009 filed a complaint against the rules, alleging that their 2009 tax assessment was unlawful. The court rejected the complaint as unfounded, stating that the plaintiffs had not been violated of their rights.

However, the court did request a change in the taxation system. The court said that there could potentially be an excessive tax burden on pensioners in the future and that the taxation system should be changed to avoid future double taxation of retirement savings.

In response to the court’s ruling, Germany’s Federal Ministry of Finance said Monday that it plans to reform pension taxation after the federal election in September.