bAV: Starting from 02.01.2005 the tax auditor will ring 2x

by Johannes Fiala, Lawyer (Munich), M.B.A. (Univ.Wales), M.M.(Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Banker (www.fiala.de )
Faulty severance payment clause: In its two circulars dated 6 April 2005 and 1 September 2005, the Federal Minister of Finance (BMF) stipulated that the severance payment of pension commitments at the partial value is tax-damaging. The deadline for repair is 31.12.2005.
Currently, numerous financial service providers are busy pointing out this liability trap to those tax advisors and entrepreneurs who missed the message.
The audit rumor: informed circles say the state needs money more than ever. Audits are supposed to bring a hefty windfall. Insiders report that one or the other higher tax office (OFD) is already planning special bAV audits from January 2006.
Backdating not possible: The calculation of some ?practitioners?, to be able to tackle the problem calmly later, might not work out. Above all, it should not be overlooked that backdating was not permitted. The age of the signatures can be determined by witnesses and by special physical expertises also later. This means that there is still a need for action in 2005.
Detrimental reservations: If there are reservations in pension commitments, in particular settlements at partial value, provisions may no longer be formed. As a result, corresponding pension provisions would have to be released to income in 2006. This is to be distinguished from the clauses which continue to be permissible and which permit a reduction or withdrawal of pension entitlements. On the other hand, the possibility of settlement at partial value is detrimental in the case of active pension claimants. This partial value is regularly lower than the otherwise usual and permissible cash value of a severance payment.
Lowering the pension commitment, as an alternative to building up more reinsurance, can lead to double taxation. If the GGF partially waives its pension commitment, this can lead to the profit increase having to be taxed at the level of the GmbH and additionally in the amount of the replacement costs as a fictitious wage at the personal level of the GGF. In this case, a tax restructuring concept is required in advance in order to avoid undesirable tax burdens.
Severance prohibitions: When drafting, it must also be examined whether severance pay regulations can be waived. Since 1.1.2005, § 3 of the German Occupational Pensions Act (BetrAVG) has in any case prohibited settlement of vested pension rights and current pensions, especially in the case of initial payment after 31.12.2004. Small pensions and small entitlements are excluded.

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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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