Contracting in Germany

[BlackSun]

Hi,
Last year I worked for a 4 months contract in Germany using a non German sole trader company. I went to two German fiscal advisors and the first one told me that I should pay income tax in Germany because I rented an apartment and I lived here with my husbant while the other one told me it is not the case. The last one also reccomend that if I want to be extra sure to go to Finanzamt to ask, which I did.
The person from Finanzamt office was no clue. Luckily I found another person who also call one of his colleague and after a 20 minute debate they concluded that I don't have to pay anything in Germany. Their argument was based on this paragraph from the double tax avoidance treaty between the countries:

"Independent Personal Services
(1) Income derived by an individual who is a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State unless he has a fixed base regularly available to him in the
other Contracting State for the purpose of performing his activities"

They consider that working on a shared office at the customer site for 4 months doesn't qualify as a "fixed base".

But what worries me is that the took so much time to reach this conclusion, and I wonder if in the future some of their colleagues will interpret things in the same manner. They said that thing are pretty clear, but being a paranoid person I keep digging into this subject and I found this forum, full of horror stories about Finanzamt. And then my anxiety grew even more when I found this in the double taxation agreement:

"(3) Where by reason of the provisions of paragraph 1 a company is a resident of both Contracting States, then it shall be
deemed to be a resident of the State in which its place of effective management is situated."


My question is, could the two Finanzamt guys miss this statement or they considered that doesn't apply? Unfortunately back then I didn't know about this paragraph to ask them and now I'm not in Germany anymore ...

[ladymuck]

Do you have their decision in writing?

If so, I would hazard a guess that you've done your due diligence and you can show that should any enquiry be forthcoming.

[BlasterBates]

Unfortunately these comments in an informal discussion provide no legal protection.

What you need to do is send a letter to the Finanzamt declaring your income and you may as well add a tax declaration form and ask for clarification. Don't bother with the details, the income on the form is perfectly sufficient to cover yourself legally.

If it is taxable they will inform you. This is the only way you can clarify it legally. For a 4 month contract the tax liability will be low.

If they tax it, then you will be asked to go through the electronic registration etc, at that point you can handover to an Accountant.

The problem may arise if they audit the client, as they always check all invoices and cross reference with the tax paid by the supplier.

You need something in writing from the Finanzamt. There is one case on this forum where a contractor faced legal action after a 5 month contract in Germany,

My approach would have been to register myself in Germany and go through the motions of declaring income in Germany and let them make the decision as to whether it's taxable. It isn't illegal to declare income that isn't taxable, but is illegal not to declare when it is taxable.

[BlackSun]

Thank you for replies

I ask the Finanzamt guys for a written conclusion but they said that they can't give me one. They only gave me the printed page with the relevant (in their opinion) paragraph. The same like the fiscal advisor. In their opinion I don't have to do nothing besides leaving Germany after 4 months.

I remember asking them if I should pay a fine in worst case after some years somebody will interpret the situation differently. They said I only have to pay the amount of tax plus around 6-7%/year. I don't want to return there only to declare the income. I guess I would need some fiscal number, for which I would need to register and so on. I prefer to pay the interest in case something happen. I guess it wouldn't be much more expensive rather than wasting a few days trip.

Also would not be a reasonable argument that "place of effective management" should not apply in this case? Otherwise if for a sole trader the effective management place immediately move with he/she then the "fixed base" rule for independent personal services will newer get the chance to apply!

I don't want to start endless debate but this "place of effective management" criteria should not have a minimum time limit? By the way, I worked 5 weeks from my home country. I have the plane tickets.

Is it common for finanzamt to changer their minds? Those people looks to me that they really made an effort to figure out what is the correct way to do ...

[BlasterBates]

Thank you for replies

I ask the Finanzamt guys for a written conclusion but they said that they can't give me one. They only gave me the printed page with the relevant (in their opinion) paragraph. The same like the fiscal advisor. In their opinion I don't have to do nothing besides leaving Germany after 4 months.

I remember asking them if I should pay a fine in worst case after some years somebody will interpret the situation differently. They said I only have to pay the amount of tax plus around 6-7%/year. I don't want to return there only to declare the income. I guess I would need some fiscal number, for which I would need to register and so on. I prefer to pay the interest in case something happen. I guess it wouldn't be much more expensive rather than wasting a few days trip.

Also would not be a reasonable argument that "place of effective management" should not apply in this case? Otherwise if for a sole trader the effective management place immediately move with he/she then the "fixed base" rule for independent personal services will newer get the chance to apply!

I don't want to start endless debate but this "place of effective management" criteria should not have a minimum time limit? By the way, I worked 5 weeks from my home country. I have the plane tickets.

Is it common for finanzamt to changer their minds? Those people looks to me that they really made an effort to figure out what is the correct way to do ...

You don't need to return to clarify this, you simply need to send a letter. The letter will mean that you cannot be prosecuted for tax evasion.