Tax Treatment of Initial Vocational Training Costs Is Constitutional

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The fact that expenses for initial vocational training or for an initial course of studies that also constitutes initial vocational training cannot be deducted as income-related expenses does not violate the German Basic Law. The Federal Constitutional Court ruled accordingly in a decision published on 10 January 2020.

Background:

Under the law, expenses for initial vocational training or for an initial course of studies that also constitutes initial vocational training are not deductible as income-related expenses. Instead, they merely reduce taxable income as special expenses (Sonderausgaben) in the year in which they are incurred. The current maximum amount for the special expenses deduction for initial training costs is EUR 6,000.

In contrast, expenses for further training and for initial vocational training that takes place within the framework of an employment relationship can be deducted as income-related expenses, like other expenses incurred for acquiring, securing and maintaining income, insofar as they are occupationally motivated.

However, the deduction of income-related expenses does not require that the taxpayer is currently already generating income. What is required is that the expenses have a sufficiently concrete and objectively determinable causal connection with future income.

Facts of the case:

The plaintiffs in the six initial proceedings each sought recognition of the costs for their initial course of studies or for their training as a pilot as income-related expenses. The 6th Senate of the BFH took the view that the so-called prohibition of deduction for initial studies and initial vocational training violated the general principle of equality. Vocational training or studies are regularly a necessary prerequisite for generating income later on, argued Germany's highest tax court. Expenses for initial training are therefore also occupationally motivated and thus constitute anticipated income-related expenses. Furthermore, according to the BFH, there is no objective reason for the unequal treatment of initial studies and second studies or training within the framework of an employment relationship.

The BFH had therefore stayed these proceedings and referred to the Federal Constitutional Court the question of whether the relevant provision of the EStG is compatible with the Basic Law to the extent that, under it, the taxpayer's expenses for initial vocational training or for an initial course of studies that also constitutes initial vocational training are not income-related expenses if such vocational training or initial studies do not take place within the framework of an employment relationship and no further income tax provisions exist under which the expenses affected by the prohibition of deduction reduce the income tax base.

Decision:

The judges of the Federal Constitutional Court consider the provision to be compatible with the Basic Law.

It is true that the provision results in unequal treatment between the taxpayer's expenses for initial vocational training or initial studies that also constitute initial vocational training (initial training costs) and expenses for acquiring, securing and maintaining income, which may also include expenses for second or further training as well as expenses for initial vocational training or initial studies that take place within the framework of an employment relationship.

However, since there are plausible reasons for allocating expenses for initial training to special expenses, the unequal treatment is justified.

In the view of the legislator, initial vocational training is one of the basic prerequisites for personal life management, because it represents provision for personal existence and serves to acquire an independent and secure position in life. For this reason, these costs are primarily allocated to the costs of personal living. This assessment by the legislator is not objectionable. Initial training or initial studies immediately after leaving school not only impart occupational knowledge, but also shape the person in a more comprehensive sense, since they offer opportunities with regard to talents and abilities that are not necessarily required for a future occupation.

The qualification of the necessary expenses as being caused by general private living corresponds to the fact that initial training is still covered by the parents' maintenance obligation. Parents owe – within the scope of their means – vocational training that best corresponds to the child's talents and abilities, willingness to perform, and noteworthy inclinations.

Even initial training that, like pilot training, shows a concrete causal connection with a later occupational activity, creates for the first time the conditions for self-determined life management and imparts competencies that generally influence the trainee's way of life. Thus, there is a private co-causation, and the legislator may therefore assume mixed-cause expenses in which private and occupational elements of causation are inseparable, and the allocation is therefore systematically made to special expenses.

The fact that the special expenses deduction for initial training costs is currently limited to EUR 6,000 also does not violate the principle of tax exemption for the subsistence minimum.