U.S. Secretary of State Antony Blinken greets service members at Ramstein Air Base, Germany, on Sept. 8, 2021. During his visit, Blinken was asked about diplomatic efforts to fend off the exorbitant fines German tax authorities have levied against service members and civilian personnel. (Branden Rae/U.S. Air Force)
STUTTGART, Germany — A potentially precedent-setting decision by Germany’s top fiscal court to overturn tax penalties on a U.S. Army civilian employee is being studied to see what ramifications it could have for other Americans locked in financially devastating fights with German tax authorities.
The Munich-based tribunal ruled in February 2021 that the finance court in Rheinland-Pfalz, home to the largest American military community outside the United States, had ignored provisions in a bilateral tax treaty that makes U.S. government pay off-limits to German tax collectors under certain circumstances.
The little-known case, only now coming to light publicly, centered on an unidentified active-duty soldier stationed in Germany in the 1990s.
An American official, speaking on condition of anonymity, said Tuesday that the U.S. is aware of the ruling and is analyzing its implications to determine whether it could be a model for others in Germany covered by NATO’s Status of Forces Agreement.
At some point during the Germany tour of the former soldier in the case, he married a German and bought real estate, actions that tax offices view as grounds for targeting U.S. personnel regardless of their SOFA status.
He was put in the taxing authority’s crosshairs after leaving the service and transitioning to an Army civilian job in Germany.
The case did not delve into the main dispute over whether SOFA offers blanket tax protection for U.S. personnel on orders in Germany. Still, the crux of the issue is an American’s motive for coming to Germany, according to the Munich court.
Local tax offices have argued that if Defense Department employees are not in Germany “solely” for their job and have other ties to the country, such as a German spouse, they can be taxed as an ordinary German resident regardless of their SOFA protections.
The Munich court asserted that “what is decisive is the point in time at which the applicant became resident in Germany.”
That means local tax officials “need to look at the reason for this person coming to Germany in the first place,” said Georg Weishaupt, a tax specialist representing three American families in separate SOFA-related tax cases. He analyzed the ruling for Stars and Stripes.
If the American arrived in Germany “solely” for the job and later married a German or bought German real estate, military pay would be exempt from taxation, Weishaupt said.
But arriving in Germany with a German spouse or anything else that could be perceived as a special tie to the country is still problematic, he said.
“(The court decision) doesn’t work for everybody,” Weishaupt said. “Maybe (the problem) has been solved for some people who are affected but not for all.”
The Bundesfinanzhof, the federal supreme court for taxes and customs in Germany, is shown in a file photo. In 2021, the court overturned monetary penalties imposed by a local tax office on a U.S. Army civilian, potentially setting a legal precedent for other American personnel challenging German tax bills. (Daniel Schwarz/Bundesfinanzhof)
It’s been nearly two years since the U.S. lodged a formal complaint about the tax issue facing hundreds of Americans with military ties in Germany, and the countries remain at a standstill on the matter.
In the meantime, U.S. personnel have been left to their own devices to fight the tax collection efforts in court. The toll exacted by the assessments and costly legal challenges has left some Americans in financial ruin.
The unidentified U.S. official who spoke about the ruling said it doesn’t completely solve the issue for targeted Americans because it’s inapplicable in some scenarios. Weishaupt concurred that it is not a full remedy.
He said the decision applies only to the family involved in the case at issue, so the question now is how local German tax offices will apply the ruling going forward.
Still, the case could set a precedent for Americans in similar circumstances who find themselves in the sights of the German version of the IRS.
Among the personnel who could stand to benefit from the court’s decision are people who have been in Germany for an extended period, such as teachers in DOD schools, who often spend the bulk of their careers overseas and sometimes buy real estate in Germany, he said.
Active-duty personnel who arrived in Germany with no special ties and later transitioned to a civilian posting in Germany also would benefit from the decision, Weishaupt said.
However, the ruling would not help SOFA-protected contractors because the decision dealt only with Americans paid directly by the U.S. government.
Also, service members or Defense Department civilian workers who marry a German while on tour or redeploy to a different country and return to Germany for another military assignment couldn’t use the ruling as a defense, he said.
Weishaupt said a more all-encompassing court decision is still needed to resolve the issue permanently.
The Americans’ cases he has working their way through the German legal system center on the contention that local finance offices are basing their right to tax on a fundamental misreading of SOFA.
“My position is anybody who is here under NATO SOFA is protected regardless of any intent or not to return to the U.S. or reasons for coming to Germany in the first place,” he said. “If my position holds in court, this issue dies and it dies for good.”
