The Finanzgericht Münster dismissed a claim that addressed precisely the question of whether research grants are tax-exempt. In the court's view, monies from research awards must also be treated as taxable employment income.
Research grants in connection with a habilitation
In the case at issue, the claimant received research grants in connection with his habilitation. This had been preceded not only by the completion of the habilitation itself, but also by lectures and published specialist contributions on the research topic. The claimant took the view that monies from research awards were to be regarded as tax-exempt. For this reason, the taxpayer entered the research grants in an additional information field on his income tax return and justified the tax exemption with the absence of any connection to his economic activity. Instead, the research grants had been awarded in recognition of his overall academic research. Furthermore, a habilitation was not required for the position of professor; "merely" the professorship itself was needed.
The tax authorities, by contrast, took the view that the research grants were indeed subject to tax. Their reasoning was that there was a direct connection between the research grants and the claimant's economic activity, since the habilitation and his professional activity (consulting) took place in the same field. In addition, a professor is required to carry out research, and a habilitation increases the chances of obtaining a professorship by virtue of the qualifications acquired. The habilitation therefore served to secure income.
Income from employment
The Finanzgericht Münster dismissed the claim. Its reasoning was that income from employment includes all benefits in money or money's worth that accrue to the taxpayer in the course of his employment relationship. It is immaterial whether the research grant is paid by the employer or by a third party. Likewise, no temporal connection between the habilitation and the commencement of an employment relationship is required. In the case at issue, the temporal connection arose from the fact that the habilitation was conducive to the appointment.
Frequently asked questions
Frequently asked questions
Are research grants received in connection with a Habilitation subject to tax?
Yes, according to the FG Münster, research grants awarded in connection with a Habilitation must be treated as taxable employment income. They constitute income from non-self-employed work, provided there is a connection to the professional activity. Tax exemption cannot be justified solely on the grounds that the funds are intended to honor the entire scholarly work.
Does it matter who pays the research funding?
No, for tax liability purposes it is irrelevant whether the research funding comes from the employer or from a third party. What matters is that the payment is connected to the recipient's employment relationship or professional activity. Prize money from third parties can therefore also constitute taxable employment income.
Must there be a temporal connection between the habilitation and the employment relationship?
A close temporal connection between completing the habilitation and starting an employment relationship is not required. It is sufficient if the habilitation is beneficial for the subsequent professional appointment or activity. This establishes the necessary causal link to employment income.
Why are research awards classified as income from employment?
Income from employment comprises all goods, whether in money or money's worth, that accrue to the taxpayer on the basis of their employment relationship. Since a habilitation enhances professional qualifications and career prospects, particularly for a professorship, it serves to secure future income. Research funding granted for this purpose is therefore professionally motivated and taxable.
Can research funds be declared as tax-free by entering them in a remarks field of the tax return?
Simply entering research funds in a remarks field of the income tax return does not result in tax exemption. The tax authorities examine the factual connection to the professional activity and subject the funds to taxation if they are professionally motivated. A tax exemption must be based on statutory law and is generally not available in the context of a habilitation.