Germany To Compromise On Student Tax Breaks

by Ulrika Lomas, Tax-News.com, Brussels

25 August 2011

Following a recent ruling by Germany’s Federal Fiscal Court (Bundesfinanzhof) that student-training costs should be recognised by tax offices in Germany as tax-deductible expenses, coalition groups underlined their intention to find a solution to the long-standing problem. The decision could lead to a significant loss of fiscal revenues for the state.

Opposing existing practice in Germany, whereby costs incurred for initial training or study may not currently be offset against future income tax payments, the Court deemed that such expenditure should be considered work-related and therefore tax-deductible. Students should ensure that they collect receipts for any costs incurred, the Court argued, to offset against future income tax once they gain employment.

Underscoring the importance of resolving the issue, without, however, encountering high administrative costs, the Free Democratic Party’s (FDP) Volker Wissing indicated that a flat tax might be a possible option.

Alluding to the fact that discussions have been ongoing in Germany for some time to determine how best to provide tax incentives for training, Vice Chairman of the Christian Democratic Union (CDU) group Michael Meister pointed out that plans to revise training costs have already been agreed in the coalition treaty. Clearly the Court’s decision must now also be taken into consideration, Meister added, noting that the government will endeavour to unite on a simple provision compatible with the country’s tax system.

Meister nevertheless warned against excessive expectations, underlining the need to focus on budgetary consolidation. Echoing this stance, Wissing also stressed that any new provision must be in accordance with the budgetary policy of the black-yellow coalition government.

The German finance ministry is currently examining the matter. German Finance Minister Wolfgang Schäuble reportedly plans to amend the country's income tax law.

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