The claimant before the Hamburg tax court (ruling of 12.5.2022, case reference 5 K 141/18) paid their employee A a financial settlement, for the loss of his job, in three instalments. The first payment was made when the (fixed-term) employment agreement was terminated and the other two payments in both of the subsequent years. In February 2003, the termination agreement was concluded at the end of that month. On 8.2.2003, A signed an employment agreement with a new employer in China and selected a house for himself there. He returned once more to Germany and then, on 20.2.2003, flew to China together with his wife in order to take up his new job there. A also received the first instalment of the financial settlement on 20.2.2003.
The local tax office held the claimant liable for the payroll tax due on this payment of the financial settlement.
The tax court considered the previous employer’s claim to be unfounded. The notice of liability had been legitimate. The financial settlement constituted remuneration for which the relevant date is when it is actually received. The payment was received at a point in time when A still had unlimited tax liability because he had given up his residence in Germany on this date, at the earliest, and had only ceased to be habitually resident in Germany on this date.
Outcome: Residence only ends when it has actually been given up. After giving up residence, if a person keeps living in Germany for a short while then habitual residence will continue until the actual departure. A received the first instalment of the financial settlement in his account still prior to his departure from Germany. Moreover, the DTA with China does not give rise to any restriction on the German right to tax. Irrespective of the reasons for the financial settlement, the claimant and A had concluded a net pay agreement on the basis of which the assumed tax had accrued.