The Tax Court of Lower Saxony has questioned whether the calculation of the child tax allowance (Kinderfreibetrag) is correct (Az. 7 K 83/16). The matter has therefore now been referred to the Federal Constitutional Court (Bundesverfassungsgericht). Should the court rule in favour of taxpayers, many parents will have paid too much income tax and could expect a refund in such a case.
Background:
The background to the referral is that the subsistence minimum for children is to be safeguarded by exempting a defined portion of the parents' income from taxation through the child tax allowance.
The so-called "Existenzminimumbericht" (subsistence minimum report) is submitted every two years in order to quantify the exact amount of the subsistence minimum that must be exempt from tax. The legislator did not fully implement the requirements of this report in 2014, with the result that the child tax allowance remained EUR 72 too low.
The decision concerns several questions that need to be addressed: for example, a lower amount is exempted from tax for adult children in vocational training than for adult children who are not in training.
However, you do not need to file an objection against your income tax assessment, because the tax assessments automatically remain provisional with regard to the child tax allowances under § 165 AO and will therefore generally be amended automatically in favour of taxpayers in the event of a positive decision.
Conclusion of the Bund der Steuerzahler (German Taxpayers' Association):
"Today's referral order by the Tax Court is an important signal to the legislator to give adequate consideration to children in tax law," says the President of the Bund der Steuerzahler, Reiner Holznagel.
(Editor's note: referral order of 2 December 2016)
Frequently asked questions
Frequently asked questions
Why was the child tax allowance referred to the German Federal Constitutional Court?
In its referral order of 2 December 2016 (Az. 7 K 83/16), the Lower Saxony Tax Court expressed doubts about the level of the child tax allowance (Kinderfreibetrag). The reason is that, in 2014, the legislator did not fully implement the requirements of the subsistence minimum report, leaving the child tax allowance 72 euros too low. Furthermore, it is criticised that a lower tax-free amount applies to adult children in vocational training than to adult children without training.
Do parents need to file an objection against their income tax assessment in order to benefit from a possible refund?
No, an objection is not required. With regard to the child tax allowances (Kinderfreibeträge), income tax assessments are automatically issued on a provisional basis pursuant to § 165 AO. Should the Bundesverfassungsgericht rule in favor of taxpayers, the affected assessments will be amended ex officio.
What is the purpose of the Kinderfreibetrag (child tax allowance) in German tax law?
The Kinderfreibetrag is intended to safeguard the subsistence minimum of children by exempting a defined portion of the parents' income from taxation. The specific amount is determined on the basis of the so-called Existenzminimumbericht (subsistence minimum report), which is submitted every two years.
What financial consequences could a favorable decision by the Bundesverfassungsgericht have?
If the Bundesverfassungsgericht rules that the child allowance (Kinderfreibetrag) was set too low, many parents will have paid excessive income tax in the affected years. In that case, they can expect an automatic tax refund without having to take any action themselves.
What does the tax court criticise about the treatment of adult children in vocational training?
The tax court objects to the fact that a lower amount is exempt from taxation for adult children undergoing vocational training than for adult children without such training. This unequal treatment is among the issues to be clarified by the Federal Constitutional Court.