Tax liability in the case of extended direct insurance

Company pension scheme: BFH ruling on tax liability in the case of extended direct insurance
An employee had agreed with the employer to take out direct insurance. The contracts had a fixed term with no provision for changes. Later, an agreement is reached between the employer and the employee that the period of active service with the company should be extended by three years. At the employee’s instigation, the employer then asked the insurance agent to adjust the direct insurance policies. In the present case, the existing contracts were extended by three years. The Federal Fiscal Court (Bundesfinanzhof, BFH) decided in its ruling of 8 July 2005 (Ref. VIII R 71/05) that the extension of the original contracts is to be treated as a new contract. The BFH justifies this by stating that it depends on whether essential features (e.g. term, sum insured, insurance premium, premium payment period) have changed. In the final analysis, a new contract is only assumed with regard to the changes to the contract – as a result, the employee has to pay tax on the interest (pro rata) in full under income from capital assets.

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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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