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Bouwkindergeld
Dr. Hannelore Niesten
In the context of the Wohnraumoffensive ( the Merkel government’s national building programme), the Koalitionsvertrag[1] (Coalition Agreement of the German Federal Government) between the political parties CDU, CSU and SPD contains an agreement on a form of child allowance to promote home ownership among young families. The Baukindergeld is a child-dependent benefit that can be made available over a period of ten years made available to assist with the purchase of an existing home or a home yet to be built in Germany. The benefit is €1,200 per child per year (up to 25 years).[2] The condition for receiving the benefit is that the annual taxable family income does not exceed €75,000, with an additional €15,000 per child. The income limit is calculated by averaging 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 autumn 2018. The scheme would apply retrospectively from 1 January 2018.[4] Baukindergeld is only for people living in Germany. It is therefore necessary to examine whether the Baukindergeld constitutesa restriction on freedom of movement and establishment, as enshrined 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 in its current form means that cross-border workers do not meet the eligibility requirements for Baukindergeld, as the person must be resident in Germany. Granting the Baukindergeld only if the property is in German territory, is contrary to EU law (in this regard, see the condemnation under European law of the Eigenheimzulage, below).
The requirement that the property must be located in Germany, would mean that resident taxpayers under German law(unbeschränkte Steuerpflicht) (including non-residents with more than 90% income from German sources) who own their homes located outside Germany, would not be eligible for Baukindergeld in Germany. Often, the country of residence is also not entitled to tax benefits that encourage home ownership. In most cases, income in the country of residence is too low to benefit from mortgage interest relief. These people therefore fall between two stools.[5]
Under the proposed scheme, frontier workers are not eligible for the benefit, although persons who are in the same situation from an income tax point of view and who live or intend to live in German territory by building or acquiring a dwelling are eligible for the benefit. Thus, in such a situation, the benefit has a disincentive effect on frontier workers working in Germany, who enjoy the right of free movement under Articles 45 TFEU and 49 TFEU, and who wish to build or acquire a dwelling in another Member State in order to settle there. It follows that the condition that the dwelling being built or acquired in order to take up residence there be on German territory is contrary to the free movement of workers and freedom of establishment guaranteed by Articles 45 TFEU and 49 TFEU.[6]
Description of benefit: social or tax benefit
Under 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 tax and social benefits.
Whether the Baukindergeld should be considered a “tax” benefit or as a “social” benefit is therefore ultimately immaterial. The German method of directly incentivising the purchase of an existing or yet-to-be-built property , can be considered an acutely negative tax in terms of its function: a subsidy. On the one hand , it can be inferred from the name ‘Baukindergeld’ that this benefit is regulated through the Einkommensteuergesetz ( Income Tax Act ) (just like the standard Kindergeld). The Baukindergeld benefit is not granted specifically to workers, but to everyone. The Baukindergeld is a general incentive scheme for homeowners. On the other hand, the German Baukindergeld benefit can also be classified as a so-called social benefit.[8] The Baukindergeld benefit should also be granted in cases where the cross-border worker and/or his or her spouse are fully exempt from taxation in Germany. Indeed, the concept of “social benefit” includes benefits granted merely because the beneficiary resides in the national territory. Cross-border workers are generally in the same position as workers based in their own national territory. The German scheme, which excludes frontier workers from benefits, therefore creates a disguised form of discrimination and therefore violates the free movement of persons and Article 7, (2) of Regulation (EU) No. 492/2011. After all, frontier workers are entitled to the same tax and social benefits as their German counterparts. Equal treatment in the workplace applies to Belgian, Dutch, Luxembourg, Polish, French, Swiss and Czech frontier workers in Germany.
However, there is no entitlement to Baukindergeld under Regulation (EC) No. 883/2004. Unlike the German Familienleistungen (child benefits)[9], German Baukindergeld cannot be classified as a social security benefit within the meaning of European Regulation (EC) No 883/2004 on the coordination of social security systems.
Right of cross-border workers to Baukindergeld in Germany under EU law
The Baukindergeld can be considered a benefit in terms of personal and family life, as referred to in the European Court of Justice ruling in Schumacker. In most cases, cross-border workers working in Germany find themselves in a ‘Schumacker situation’.[10] In most cases , resident taxpayers under German tax law who live outside Germany earn almost all of their income or family income in Germany (90%) and should therefore be treated in the same way treated as German residents in terms of personal and family benefits. Denying financial assistance to persons living outside Germany, but are considered resident taxpayers under German tax law, constitutes indirect discrimination and violates EU law.[11] After all, under EU law, migrant frontier workers are entitled to the same treatment as comparable workers (d.i.e. in the “Schumacker situation”) who are nationals of the country in question. Consequently, Germany must also grant Baukindergeld for owner-occupied housing outside German territory if the frontier worker working in Germany has income of which more than 90% is subject to German tax subject (and is therefore a resident taxpayer under German tax law ). On the other hand, it also follows from EUlegislation also states that whether or not the personal and family circumstances of the taxpayer by the country of residence is an important factor.[12] If the country of residence cannot do this because the person in question has insufficient taxable income, while Germany , as the country of employment, can take this into account because the person in question receives sufficient income there, Germany will have to grant the benefit, even if the 90% income threshold is not reached.
Moreover, cross-border workers working in Germany, even in non-Schumacker situations, are entitled to German Baukindergeld under Regulation (EU) no. 492/2011 of 5 April 2011 on freedom of movement for workers within the Union.[13] As mentioned above, under Article 7(2) of Regulation (EU) No. 492/2011 the same “tax and social advantages” as workers with the nationality of the host Member State. Since Baukindergeld is to be considered a benefit within the meaning of Article 7(2) of Regulation (EU) No. 492/2011, frontier workers working 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 in Germany[14] The Eigenheimzulage was a large-scale building subsidy for families between 1995 and 2005. This benefit was granted to families (with children) who wanted to buy a house. About €800 per child per year was allocated. This German tax-free subsidy scheme to promote home ownership was abolished in 2005[15] People who were liable to tax in Germany under German tax law and had bought a home in Germany were eligible for the Eigenheimzulage[16] However, Germany refused to pay out the Eigenheimzulage to frontier workers who worked 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 frontier workers violated EU law.[17] The then European Commissioner Frits Bolkestein was of the opinion that a “frontier worker who was a taxpayer resident in Germany under German tax law” could claim the German Eigenheimzulage[18] After infringement proceedings by the European Commission, the Court of Justice ruled against the German government in 2008. 19] Border workers whohad applied for the Eigenheimzulage , still received the benefit retroactively.
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 free movement of persons and European citizenship do not allow for a distinction between places of residence in this respect.[20] It is recommended that a coherent analysis of the impact of the new legislation for frontier workers to be included in the parliamentary debate on new legislation, which could be included in a separate section of the explanatory memorandum. However, to the extent that analyses of the cross-border impact of new legislation have taken place, these analyses are often not conducted in a coherent manner, i.e. the research methodology varies. In general, the cross-border impact of new legislation on cross-border workers and border regions is still not sufficiently examined, ie.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 was budgeted for construction costs. An amount of €3 billion is 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 regards the Netherlands, taxpayers can carry forward excess foreign box 1income (taxable income from work and home ownership) to be carried forward to a subsequent year ( known as the carry forward or stall arrangement ).
See Article 11 ‘ Double Taxation Avoidance Decree 2001’.
[6] Compare with ECJ, 26 October 2006, C-345/05, Commission v Portugal, [2006] ECR I-10633, paragraph 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, Pb. L 141/1.
[8] See the article by G. Essers, “Is a cross-border worker entitled to German Baukindergeld? Yes!”, available at https://aha24x7.com/heeft-een-grensarbeider-aanspraak-op-het-duitse-baukindergeld/.
[9] Under European Regulation ( EC ) no. 883/2004 on the coordination of social security systems , a frontier worker is entitled to German Familienleistungen (child benefits). If one parent works in the Netherlands and the other in Germany, the Dutch child benefit is paid first. 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 work.
[10] Among others, ECJ, 14 February 1995, C-279/93, Schumacker, ECR 1995, I-225. See also H. Niesten, Tax benefits of the cross-border EU person. A study on the need and potential of minimising tax obstacles to the free movement of persons in the European single market, Hasselt and Maastricht PhD thesis, 2017.
[11] These include the free movement of workers in Articles 18 and 45 TFEU; the freedom of establishment in Article 49 TFEU for the self-employed.
[12] Zie HvJ EG 9 February 2017, C-283/15, X, ECLI:EU:C:2017:102, punt 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, Pb. L 141/1.
[14] The Eigenheimzulage was laid down in the first sentence of §2(1) of the Owner-Occupied Housing Grant Act (Eigenheimzulagengesetz) in the version published in 1997, as amended by the accompanying Budget Act 2004 (Haushaltsbegleitgesetz 2004).
[15] The Law on the Abolition of Subsidies for the Construction of Real Estate for Own Use (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 BGBl. 2002 I, blz. 4210 (hierna: “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: Germany should grant Eigenheimzulage to frontier workers’, NTFR 2003, issue 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, ECR. 2008, I-39, V-N 2008/10.6.
[20] ECJ 17 January 2008, C-152/05, Commission v Germany, ECR. 2008, I-39.
[21] On a positive note , however, two studies on the position of frontier workers were published in 2017:
– Report of the Frontier Workers Committee, Frontier workers in Europe; An examination of tax, social insurance and pension aspects of cross-border working (Papers of the Tax Science Association No 257), Tax Science Association 2017.
– H. Niesten, Tax benefits of the cross-border economically active EU person ( Maastricht and Hasselt dissertation), 2017.