Incorrect tax data at the life insurer leads to massively excessive tax
The Münster Tax Court (FG, judgement of 30.01.2018, file no. 5 K 3324/16 E) recently decided that an occupational disability pension ending before the start of the retirement pension is not taxable in accordance with a basic pension for the most part, but with far less than half. This is because, as with other (pension) income, only the small proportion of this income is taxable as income. The tax office, on the other hand, had repeatedly invoked the life insurer’s electronic transmission, which was incorrect in terms of content.
Incorrect electronic transmission of the insurance carrier leads to tax reduction
The Federal Minister of Finance (BMF letter of 19.08.2013 and of 10.01.2014, BStBl. I 2013, 1087 and BStBl. I 2014, 70) had already stated since 2013 that the premium portion for the supplementary occupational disability insurance (BUZ to the basic pension) is not, like special expenses, largely deductible in income tax for the pure basic pension if the BU pension ends as scheduled before the start of the old-age pension. Or, for example, if their share of premiums is higher than half.
Nevertheless, the insurer (VR) had included the premiums of the BUZ and thus reported them as excessive, so that for years there was an excessive deduction of special expenses. The question of evasion, possibly by indirect perpetration, had not yet been investigated at all – as far as can be seen from the judgment. He then probably meant to report the paid pension just as wrongly, so that it would be taxed too high to compensate.
Correctly designed BUZ pension is only taxable with the income share
If a BU (supplementary) insurance policy ends as planned before the start of the – not immediately subsequent – retirement pension, it is not taxable like a (basic) retirement pension at a higher rate than only with the low profit share. Their contribution cannot then be claimed as a major part of the special edition. And this also applies even if, due to an error on the part of the insurer, the BUZ premium was reported to the tax office as a special expense and was granted tax benefits.
Incorrect electronic transmission of the insurance carrier leads to often high tax
In response to the first error (BUZ benefit too short, incorrect report on the deduction of special expenses), the BoD added a second error on top of the first one, namely that the BU pension was reported as a basic pension and therefore subject to higher taxation. Only the FG, following an objection by the insured, rejected this and confirmed that only a fraction is taxable, i.e. the so-called profit share.
It seems plausible that, because of the false report on premium payment “deductible like special expenses”, the board of directors now also see themselves as busy deducting a new false report on BU pension payment “taxable like normal basic pension” as an unsuitable “repair attempt”. Apparently, the policyholder or taxpayer can neither rely on the BoD’s computerised reports nor on the treatment of the tax assessment, which is always correct.
Wrong pension taxation even for the basic pension?
It will be worthwhile – even beyond the BUZ in the case of old-age pensions – in many cases to review the conditions for (full?) taxation of basic pensions. Because if the strict tax conditions for the deduction of special expenses are not met, everything is taxable only with the low share of profit, even if the insurer had incorrectly reported the premiums as special expenses and they have led to high tax advantages for years.
In the case of the basic or Rürup pension, for example, only the product is certified, § 5a AltZertG. However, this does not mean whether the respective specific individual contract is entitled to a full deduction of special expenses. For example, in the event of death, a lump-sum payment to beneficiaries or survivors may have been provided for. Alternatively, only one (non-marital) partner and no life partner was provided for as a survivor. Or the contract is transferable or hereditary, the annuity starts too early or may fall, or the wrong policyholder or contributor is agreed.
Precise tax contract review avoids excessive pension taxation
In the past, mistakes have been made systematically by insurers and, without inspection, by the tax authorities after they have reported them – possibly at times with possibly incorrect allocation of insurance premiums or premiums and incorrect allocation of the pension. As in the case of the Münster Regional Court, these visibly led to further developments in the sense of subsequent incorrect assessment, with expensive consequences for the pensioner. It might potentially be worthwhile for recipients of (also BU) private pensions to critically question the tax treatment at the tax office on the basis of their own concrete contract documents. Ideally, tax advantages should only be achieved when drawing a pension and taking it with you because of the – unrecognised – false reports from the insurer.
So BU pensions are often initially limited to up to several years in the event of a claim – then for this period and analogously afterwards a lower share of income corresponding to the respective duration can be enforced with the tax office, even if the insurer has simply reported the planned total duration. It may also be worthwhile carrying out an actuarial review of the proportionate taxation and social security contributions calculated by the insurer for mixed private and occupational pension and capital payments. Individual trainers at civil servant financial colleges consider up to more than 90% of tax assessments to be incorrect.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.submission.de (Submission indicator No 206 of 24.10.2018)
www.kompetenznetz-mittelstand.de (published December 2018)
Link: https://www.kompetenznetz-mittelstand.de/de/app/account/kanzlei-johannes-fiala/article/finanzgericht-m%C3%BCnster-wrong control message-of-v_jpv1zy5u.html
www.handwerkernachrichten.com (published on 17.10.2018)
www.experten.de (published on 20.08.2018)
http://www.network-karriere.com/ (published in issue 05/2018, page 30, under the heading: Incorrect tax data at the life insurer leads to excessive tax)
www.cash-online.de (published on 17.10.2018 under the heading: 90 percent of tax assessments for BU and basic pensions incorrect?)
www.alterskompetenz.info (published on 28.03.2018 under the heading: Incorrect pension taxation for occupational disability pension
www.network-karriere.com (published in issue 08/2018, page 29, under the heading: It’s your money: Excessive taxes and social contributions)
www.neues-deutschland.de (published on 25.04.2018, under the heading: Higher tax due to wrong tax data – Press)
www.neues-deutschland.de (published on 20.0.2018, under the heading Incorrect premium notification of the insurers contradict – Press)
www.assekuranz-info-portal.de (published on 17.10.2018, under the heading: 90 percent of tax assessments for occupational and basic pensions incorrect? -press)
www.experten.de (published on 19.03.2019 under the heading: Wrong data at the life insurer leads to masses of excessive tax)
www.bindereport.de (published in issue 7/2019, page 36 under the heading; insurers effectively object)
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About the author
PhD, MBA, MM
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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