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German Commuters To Regain Tax Breaks, Court Rules

by Ulrika Lomas, Tax-News.com, Brussels

16 December 2008


The German Finance Ministry was dealt a harsh blow by Germany’s highest court last week after it ruled that the government's decision to curb tax subsidies for commuters was constitutionally illegal.

The government will now have to pay back revenues gained since the implementation of the new rules in January 2007.

Since the new regime was enforced German commuters have been unable to claim the subsidy which previously entitled them to recoup EUR0.30 per km on the first 20km of their journey. The change eliminated the concessions for millions who carried out short distance commutes.

The German Chancellor, Angela Merkel said that the government would respect the ruling and start to repay the subsidies as soon as possible. The Chancellor insisted that the ruling, although disappointing, was not devastating, explaining that the rebated money could increase consumer consumption, meaning that at least some of the returned revenues could be regained from sales taxes.

However, Finance Minister Peer Steinbrueck has said that the ruling will be very detrimental to future taxpayers as the decreased tax take will ultimately increase state debt and be paid for by generations to come.

Steinbrueck first removed the tax breaks to try and help balance the budget by 2011, but the ruling will now mean that the government must borrow more after pledging not to raise taxes elsewhere to fill the revenue gap. The German government is now faced with the challenge of mustering EUR7.5bn to return to German commuters for the period from January 2007 to December 2009.


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