Tax Treaty Case Law around the Globe 2016

S. 219Chapter 18 Germany: Taxing Right for a Golden Handshake and the Effect of a Mutual Agreement between the Competent Tax Authorities

Alexander Rust

18.1. Facts of the case

The taxpayer lived and worked in Germany until the termination of his work contract; he then moved to Switzerland. A few months after his move to Switzerland he received a severance payment from his former employer as a compensation for the loss of his job.

The German tax administration taxed the severance payment arguing that the taxpayer was subject to limited tax liability and the severance payment constituted domestic-source income. The tax administration did not feel restricted by article 15(1) of the DTC Germany-Switzerland 1971 since it was of the opinion that the severance payment was a compensation for the work done in Germany. It referred to a mutual agreement concluded between the German and Swiss competent authorities. According to this mutual agreement, article 15(1) of the DTC Germany-Switzerland grants the primary taxing right to the contracting state in which the employment was exercised. The taxpayer contested this view and argued that article 15(1) of the DTC Germany-Switzerland attributes the exclusi...