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Taxation of Nato soldiers

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Remuneration of US soldiers stationed in Germany remains tax-free

US soldiers stationed in Germany do not have to pay tax in Germany on the income they earn from their employment with the United States.

This was decided by the Rhineland-Palatinate Fiscal Court in a ruling that deviates from its previous case law. However, the decision is not yet legally binding, as the court has allowed an appeal.

Tax office: Residence in Germany - income tax liability for US reservists

A US citizen, who has lived in Germany with his German wife since 2009 and is a reservist in the US armed forces, was assessed for tax in Germany by the tax office.

As the claimant did not provide any proof of an intention to return to the USA after the end of his service, the tax office considered the requirements of Art. X of the NATO Status of Forces as not being fulfilled. The remuneration from his work in Germany was therefore classified as taxable. Appeals and legal action against the income tax assessments were unsuccessful.

New ruling: Tax exemption for military pay of US troops in Germany

The tax court partially upheld the claim and changed its previous case law.

It followed the arguments of the plaintiff’s representative and the opinion of the US Department of the Army – Office of the Staff Judge Advocate. Accordingly, the interpretation of Art. X para. 1 sentence 2 of the NATO Status of Forces Agreement is incorrect. The military pay of military personnel is therefore exempt from income tax in Germany.

Reservist status irrelevant: Tax exemption for income from US service

According to the NATO Status of Forces Act, members of a troop in the host country (in this case Germany) are exempt from taxation on income paid to them by the sending country (USA).

The Tax Court clarified that the plaintiff is considered a member of the US forces, regardless of the fact that he was a reservist. The statute does not provide for any restrictions with regard to reservist status, meaning that his income also remains tax-free.

Tax exemption under the NATO Status of Forces: Intention to return not required

The tax court emphasized that the tax exemption under Art. X para. 1 sentence 2 of the NATO Status of Forces Act does not require that members of a troop or civilian entourage intend to return to their home country after completing their service.

The plaintiff was in Germany during the years in dispute due to his deployment and official duties. Personal relationships, such as with his wife, are irrelevant for the application of the tax exemption.

Inconsistent BFH case law: Tax exemption under NATO troop status before the Federal Fiscal Court

The appeal is pending before the Federal Fiscal Court (BFH) under case number I R 47/22. The tax court allowed the appeal as the question of fundamental importance is whether the tax exemption under Art. X para. 1 sentence 2 NATO Status of Forces requires that members of a troop or a civilian entourage reside in the host state “only in this capacity”. In addition, there is disagreement in BFH case law on this issue.

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