Dr. Hannelore Niesten

Within the framework of the Wohnraumoffensive (the Merkel government’s national building scheme), the Koalitionsvertrag[1] (Coalition Agreement of the German Federal Government) between the political parties CDU, CSU, and SPD includes an agreement to a form of child benefit aimed at promoting home ownership among young families. The Baukindergeld is a child-dependent benefit that can be made available over a period of ten years to assist with the purchase of an existing dwelling or a dwelling that has yet to be built in Germany. The benefit amounts to €1,200 per child per year (up to 25 years of age).[2] The condition for receipt of the benefit is that the annual taxable family income does not exceed €75,000, with €15,000 added to the limit per child. The income limit is calculated by taking the average of the annual income of the past two calendar years. So far, there is no legal basis for the benefit.[3] The law is expected to be passed in the autumn of 2018. The scheme would apply retroactively from 1 January 2018.[4] The Baukindergeld is only for people who live in Germany. It is therefore necessary to examine whether the Baukindergeld constitutes a restriction on free movement and freedom of establishment laid down in Articles 21, 45, and 49 of the Treaty on the Functioning of the European Union (TFEU).

Residence requirement of the benefit is not EU-proof

The proposed scheme as it stands today means that cross-border workers do not meet the conditions of eligibility for the Baukindergeld, as it requires the person concerned to be resident in Germany. Making the Baukindergeld conditional on the dwelling being located on German territory is contrary to EU law (see in this context the condemnation pursuant to European law of the Eigenheimzulage [grant for building owner-occupied property], below).

The requirement for the home to be located in Germany would mean that resident tax payers under German law (unbeschränkte Steuerpflicht) (including non-residents with more than 90% German-source income) who are owners of their home which is located outside Germany would not be eligible for the Baukindergeld in Germany. There is often also no right in the country of residence to tax benefits that encourage home ownership. In most cases, incomes in the country of residence are too low to be able to benefit from mortgage interest relief. These people therefore fall between two stools.[5]

Under the proposed scheme, cross-border workers are not eligible for the benefit, even though persons who are in the same situation from an income-tax perspective and who live or intend to live on German territory by building or acquiring a dwelling are eligible for the benefit. In such a situation, the benefit therefore has a dissuasive effect on cross-border workers working in Germany, who enjoy the right to free movement pursuant to Articles 45 and 49 of the TFEU and who wish to build or acquire a dwelling in another Member State in order to take up residence there. It follows that making the Baukindergeld benefit conditional on the dwelling that is being built or acquired for the purpose of living in it being situated on German territory infringes the freedom of movement of workers and the freedom of establishment, as guaranteed by Articles 45 and 49 of the TFEU.[6]

Designation of the benefit: social or tax advantage

Pursuant to Article 7(2) of Regulation (EU) No 492/2011 of 5 April 2011 on freedom of movement for workers within the Union[7], migrant workers enjoy the same ‘tax and social advantages’ as workers with the nationality of the host Member State. Cross-border workers are entitled to equal treatment in terms of fiscal and social advantages.

Whether the Baukindergeld is to be regarded as a ‘fiscal’ benefit or as a ‘social’ benefit is therefore ultimately not important. The German method of directly promoting the purchase of an existing dwelling or one yet to be built can be regarded as an acute negative tax in terms of its function: a grant. On the one hand, it can be argued from the name ‘Baukindergeld’ that this benefit is taken care of via the Einkommensteuergesetz (Income Tax Act) (as is the standard Kindergeld [child benefit]). The Baukindergeld benefit is not specifically granted to workers but to everyone. The Baukindergeld benefit is a general incentive scheme for home ownership. On the other hand, the German Baukindergeld benefit may also be designated as a so-called social benefit.[8] The Baukindergeld benefit should also be granted in cases in which the cross-border worker and/or his or her spouse are fully exempt from tax in Germany. After all, the notion of ‘social benefit’ also offers advantages that are granted simply because the beneficiary is resident in the national territory. Cross-border workers are, as a rule, in the same position as workers established in their own national territory. The German scheme, under which cross-border workers are excluded from the benefit, therefore creates a disguised form of discrimination and is therefore contrary to the free movement of persons and Article 7(2) of Regulation (EU) No 492/2011. After all, cross-border workers are entitled to the same fiscal and social advantages as their German counterparts. Equal treatment in the workplace applies to Belgian, Dutch, Luxembourg, Polish, French, Swiss, and Czech cross-border workers in Germany.

However, there is no entitlement to Baukindergeld under Regulation (EC) No 883/2004. Unlike the German Familienleistungen (Family benefits, e.g. Kindergeld [child benefit])[9], the German Baukindergeld cannot be designated as a social security benefit within the meaning of the European Regulation (EC) No 883/2004 on the coordination of social security systems.

Eligibility of cross-border workers to receive Baukindergeld in Germany pursuant to EU law

The Baukindergeld can be regarded as an advantage in terms of personal and family life, as referred to in the judgment of the European Court of Justice in the Schumacker case. In most cases, cross-border workers working in Germany find themselves in a ‘Schumacker situation’.[10] In most cases, resident tax payers under German tax law who live outside Germany earn almost their entire income or family income in Germany (90%) and should therefore be treated in the same way as German residents as regards personal and family benefits. Refusing to grant financial assistance to persons resident outside Germany but who under German tax law are deemed a resident tax payer constitutes indirect discrimination and is contrary to EU law.[11] After all, under EU law, migrant cross-border workers are entitled to the same treatment as comparable workers (i.e. in the ‘Schumacker situation’) who are nationals of the country in question. Consequently, Germany must also grant the Baukindergeld for owner-occupied dwellings situated outside German territory if the cross-border worker working in Germany has income of which more than 90% is subject to German taxation (and is therefore a resident tax payer under German tax law). On the other hand, it also follows from EU law that whether or not the country of residence can take into account the personal and family circumstances of the tax payer is an important factor.[12] If the country of residence is unable to do so due to the person in question having an insufficient taxable income, while Germany as the country of employment can take this into account because the person concerned receives sufficient income there, Germany will have to grant the benefit even if the 90% income limit has not been met.

Moreover, even in non-Schumacker situations, cross-border workers working in Germany are entitled to German Baukindergeld pursuant to Regulation (EU) No 492/2011 of 5 April 2011 on freedom of movement for workers within the Union.[13] As stated above, pursuant to Article 7(2) of Regulation (EU) No 492/2011 migrant workers enjoy the same ‘tax and social advantages’ as workers with the nationality of the host Member State. As the Baukindergeld is to be considered as a benefit within the meaning of article 7(2) of Regulation (EU) No 492/2011, cross-border workers employed in Germany are entitled to it.

Lessons from previous European rulings on the former German ‘Eigenheimzulage’

The Baukindergeld is the successor to the former Eigenheimzulage (grant for building owner-occupied property) in Germany.[14] The Eigenheimzulage was a large-scale building grant for families between the years 1995 and 2005. This benefit was granted to families (with children) who wanted to acquire property. Approximately €800 per child was granted per year. This German tax-free grant scheme for the promotion of home ownership was abolished in 2005.[15] People who were resident tax payers in Germany under German tax law and who had acquired a dwelling in Germany were eligible to claim the Eigenheimzulage.[16] However, Germany refused to pay the Eigenheimzulage to cross-border workers working in Germany. The Eigenheimzulage was abolished after the European Commission was asked by the European Parliament in 2003 whether Germany’s refusal to pay the Eigenheimzulage to cross-border workers was in breach of EU law.[17] The then European Commissioner Frits Bolkestein was of the opinion that a ‘cross-border worker who was a resident tax payer in Germany under German tax law’ could claim the German Eigenheimzulage.[18] Following infringement proceedings by the European Commission, the Court of Justice ruled against the German government in 2008.[19] Cross-border workers who had applied for the Eigenheimzulage received the payment after all with retroactive effect.

Possible solutions

It is clear from the above that the Baukindergeld cannot be limited to homeowners in Germany. Cross-border workers living outside Germany and working in Germany are also entitled to it. The rules on the free movement of persons and on European citizenship do not allow any distinction to be made between places of residence in this respect.[20] It is recommended that a coherent analysis of the impact of the new legislation on cross-border workers be included in the parliamentary debate on new legislation, which could be included in a separate section of the Explanatory Memorandum. However, in so far as analyses of the cross-border impact of new legislation have taken place, such analyses are often not carried out in a coherent manner, i.e. the method of investigation varies. In general, the cross-border impact of new legislation on cross-border workers and border regions is still not being adequately examined, i.e. the cross-border effect is still underestimated by national legislators.[21]

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[1] Can be viewed (in German) at: https://www.cdu.de/system/tdf/media/dokumente/koalitionsvertrag_2018.pdf?file=1.

[2] In 2018, €263 million is budgeted for construction costs. The sum of €3 billion will be set aside for the coming financial years. See (in German): https://www.vergleich.de/baukindergeld.html.

[3] http://www.aktion-pro-eigenheim.de/haus/news/baukindergeld-2018-ein-update-zur-baufoerderung-fuer-familien.php.

[4] http://www.faz.net/aktuell/wirtschaft/kompromiss-beim-baukindergeld-flaechenbegrenzung-aufgehoben-15661576.html.

[5] As far as the Netherlands is concerned, the taxpayer can transfer a surplus of foreign ‘box 1’ income (taxable income from employment and homeownership) to a subsequent year (the so-called doorschuifregeling or “storage scheme” (stallingsregeling)).

See article 11 ‘Double Taxation (Avoidance) Decree 2001’.

[6] Compare with ECJ, 26 October 2006, C-345/05, Commission/Portugal, Jur. 2006, I-10633, point 25.

[7] Regulation (EU) No 492/2011 of the European Parliament and of the Council of 5 April 2011 on freedom of movement for workers within the Union, OJ. L 141/1.

[8] See article expressing the views of G. Essers, ‘Heeft een grensarbeider aanspraak op het Duitse Baukindergeld? Ja!’ (in Dutch), available at https://aha24x7.com/heeft-een-grensarbeider-aanspraak-op-het-duitse-baukindergeld/.

[9] Pursuant to the European Regulation (EC) No 883/2004 on the coordination of social security systems, a cross-border worker is entitled to the German Familienleistungen (Family benefits, e.g. Kindergeld [child benefit]). If one parent works in the Netherlands and the other parent works in Germany, the Dutch child benefit ranks first for payment. Germany must then supplement (‘aufstocken’) the Dutch child benefit to the applicable German level. Equal treatment in the country of residence and equal treatment in the country of employment.

[10] Amongst others ECJ, 14 February 1995, C-279/93, Schumacker, Jur. 1995, I-225. See also H. Niesten, Belastingvoordelen van de grensoverschrijdende EU-persoon. Een onderzoek naar de behoefte aan en de mogelijkheden van het minimaliseren van fiscale belemmeringen van het vrije personenverkeer in de Europese interne markt, PhD thesis Hasselt and Maastricht, 2017.

[11] Amongst others the free movement of workers in Articles 18 and 45 of the TFEU; freedom of establishment in Article 49 of the TFEU for self-employed persons.

[12] See ECJ 9 February 2017, C-283/15, X, ECLI:EU:C:2017:102, point 42.

[13] Regulation (EU) No 492/2011 of the European Parliament and of the Council of 5 April 2011 on freedom of movement for workers within the Union, OJ. L 141/1.

[14] The Eigenheimzulage was set out in the first sentence of Paragraph 2(1) of the Law on subsidies for owner-occupied dwellings (Eigenheimzulagengesetz) in the version published in 1997, as amended by the Accompanying Budget Act of 2004 (Haushaltsbegleitgesetz 2004).

[15] The law abolishing the grant for building owner-occupied property (Gesetz zur Abschaffung der Eigenheimzulage) of 22 December 2005, BGBl. 2005 I, p. 76.

[16] paragraph 1 of the Einkommensteuergesetz (Income Tax Act), in the version of the BGBl (Federal Law Gazette). 2002 I, page 4210 (hereinafter: ‘EStG’).

[17] Written question E-3846/02 by Ieke van den Burg (PSE) and Wilfried Kuckelkorn (PSE) to the Commission. See (in Dutch): J. Feijen, ‘Bolkestein: Duitsland moet Eigenheimzulage verlenen aan grensarbeiders’, NTFR 2003, edition 16, p. 679.

[18] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A92002E003846.

[19] ECJ 17 January 2008, C-152/05, Commission v Germany, Jur. 2008, I-39, V-N 2008/10.6.

[20] ECJ 17 January 2008, C-152/05, Commission v Germany, Jur. 2008, I-39.

[21] On the positive side, however, two studies on the position of cross-border workers were published in 2017:

– Report by the Commissie grenswerkers (Committee for cross-border workers), Grenswerkers in Europa; Een onderzoek naar fiscale, sociaalverzekerings- en pensioenaspecten van grensoverschrijdend werken (Geschriften van de Vereniging voor Belastingwetenschap no. 257), Vereniging voor Belastingwetenschap (Association for taxation studies) 2017.

– H. Niesten, Belastingvoordelen van de grensoverschrijdende economisch actieve EU-persoon (PhD thesis Maastricht and Hasselt), 2017.