The morning newspaper in Saint John, New Brunswick, Canada has a front page article about a German couple who immigrated to Canada in 1963. They have lived here ever since that time and now have received a tax bill from Germany going back to 2005. They have been sent documents saying that there will be penalties unless they pay $2331 retroactive income tax.
The article goes on to say thousands of German-Canadians have been getting these notices recently.
Inquiries seem to indicate a change of the law in 2005 in Germany making German pensions paid abroad subject to taxes.
I can’t post a link as the newspaper has moved behind a paywall but it really is starting to look like people should be citizens only of the country where they live.
@John Can you tell us the name of the paper and the title of the article, and perhaps we can find a work around the pay wall.
The Telegraph-Journal and the title was “Two Tax Bills.”
It only applies to German government pensions – so far.
Hmmm…This is interesting and potentially could lead in the FATCA direction, but for now this seems like a bit of non-news. 2,000 dollars in back taxes owed on a German pension is a bit different than the US government saying that you forgot to report a bunch of bank accounts that have nothing to do with the US and now owe us half of your life savings in penalties as a result.
I am worried though – Other countries are starting to see what the Americans are doing and taking note. The German parliament actually supposedly had a bill floated that would have enacted US style citizenship-based taxation, but it died a quick death. They wanted to nab all of the Germans who have moved to Switzerland.
I’m starting to believe that the only “safe” dual citizenship countries are either very tiny or another EU country if you live in the EU since you are protected from double taxation within the EU. For example, I don’t think that a country like Greece, however much it might love to enact it, could get away with a diaspora tax since they’re so small on the world stage and nobody would listen to them. The danger is that countries like the UK, Germany, France, Russia, China, India and Brazil all look at US citizenship based taxation and then try to emulate it, resulting in a huge legal and financial mess.
Best to have maybe Swiss/New Zealand/Singapore passports once the big boys start wanting their dues no matter where you are ?
I’m not having any luck finding this article… but I would love to see it.
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It seems like things are going in that direction. But this is a real surprise to me because I thought Germany only applied taxes territorially.
@Don – that is EXACTLY what I was thinking a few months ago. “Tax the diaspora” is a game anyone could play. And since most Americans in the homeland are member of a diaspora of one form or another they could end up being the pigeons here. The French left has proposed several schemes in the past few years including a “solidarity tax” for expatriate French. Talking to friends and family here, they think that such a thing would be completely reasonable. After all shouldn’t those Frenchmen and women who made it big in California kick in to help the homeland?
I told this to my brother in California and he was aghast at the idea that the French government might suck money out of HIS state. Bad idea, he said. I agree wholeheartedly, little brother. 🙂
@Victoria
Has François Hollande said anything about bringing in a “solidarity tax” if he wins? Sounds like some sort of flat percentile tax on foreign earnings? How draconian have the floated proposals before been?
Gee I wonder if I should look into getting my CLN from India. I lost my Indian citizenship at the age of 11 when I became a Canadian citizen. You never know what kind of bright ideas the Indian government might come up with considering the large Indian population in North America and UK.
Check this out as well:
http://www.guardian.co.uk/money/2010/mar/16/expat-britons-lose-pensions-appeal
UK pensioners outside of the EU do not benefit from inflation related increases in their pensions as those in the UK or EU do. I wonder which is worse, getting taxed by the German government on a pension or not having it increase with inflation? I would guess that inflation would kill the value of the pension a lot quicker than a small tax would.
@all- There is nothing remotely resembling FATCA in the Germans taxing the government pension outlays. The taxing of government pensions amounts to a territorial tax because you are taxing government generated income.
FATCA is a government worldwide wealth monitoring system that is designed to make sure that Americans pay taxes on all their income, no matter what the denomination that income is made in and without regard to one’s residency.
Whereas the German government is only looking to tax its pension payments. Payments that are based on wealth that was generated in Germany.
@recal – good point! The money is technically generated there.
@all – Seriously, someone got me thinking about fat cats. If most of them have cash to pay for 2nd citizenship, then why in the hell are they still American? I don’t think anyone in their right mind, who is rich and made their money overseas, would want to keep US citizenship knowing what has been done in the past and what is coming in the future.
If there is a real fat cat, that made money overseas and is still American, I’d like to see who they are… I think it’s just political rhetoric.
In further news, England is charging back taxes and penalties for those from the USA with English ancestors that joined the revolution. 😀 Oh, and mainland China is asking people in Taiwan to file. The stupidity never stops hurting!
*The worse thing is that they are making this retroactive from 2005. Lot of people abroad are getting peanuts to begin with in the form of German pension and they even want to tax this measely pension and force old people to go through all this headache 🙁
*There are indeed risks of funny things happening in other countries. In all countries, the double taxation agreements state that you are not excused from taxation if you maintain an empty household in the country you have left behind. It cannot be available for your use. It must be rented out or have a “for sale”sign in front (hint hint). In order to prevent getting a tax bill in the land of your empty house or retned apartment you and your expensive tax lawyer will need to be very educated in how to handle the situation. If one were away from one’s house in Sweden, there could very easily be a full tax bill on all of your income from where you live and work, and you would have to go through the tax court system (where you would lose lots of lawyer money) in order to get the partial repreive (the final bill would be that you would have to pay the difference between the Sweden 52% marginal rate and whatever rate you have where-ever you are. There is indeed some reprieve possible if it is proved the Swedish house is smaller living area etc, and you get a statement from your new country, and la la la.
If a European takes a job in USA, Dubai, or elsewhere, he better rent or sell his house.
@Mark Twain
“If a European takes a job in USA, Dubai, or elsewhere, he better rent or sell his house.” This needs to be qualified for Swedes. From everything I know, Swedes should sell their houses if they are outside of the country and do not want to be taxed on non-employment income in Sweden. Let me explain.
The rule in Sweden is that if you are Swede, or Swedish resident, and reside out of the country and you maintain “essential ties” to Sweden, e.g. own a house/apartment, you are liable for income tax on your worldwide non-employment income (passive income), even if you are not living in the country and are de-registered from the population register. It is only your employment income that is non-taxable. Your worldwide passive income is taxed at a flat rate of 30%.
If you not resident in Sweden and have pension income, you can file forms to be taxed at the “SINK” rate of 25% on Swedish income from all types of pensions, including private pensions. Paying SINK exempts you from filing a declaration if you do not have any other kind of income to declare.
I think 30% tax will be automatically taken out at source on any Swedish investment income even if you do not own property in Sweden and even if you have left permanently. One should clarify if that investment would require filing a declaration form for declaring it and/or a possible refund of tax. It would be best to ask the Swedish Tax Authority about this.
In the US tax treaty, the Swedish government maintains the right to tax you for ten years after you have left the country. I am not sure when they would apply it.
So while Swedish rules are quite strict and unpleasant, should you make an error that does not qualify as amendment (omprövning), you would make a Voluntary Disclosure (Frivillige Berättelse) that would ONLY require you to pay past owed tax plus interest. That’s it. The Swedish Tax Authority does not care about why this error occurred as they believe anyone coming to them has tax morale. The most important thing in their view is “getting it right” and their policy is not to punish you if you come to them willingly. However, should they discover you first, the penalty is 40% of the tax owed.
My points are:
1) that the Swedish example shows that residence based taxation can have its fine points that one needs to be aware of.
2) It is the attitude of the Swedish Tax Authority that is a positive point. Efforts to be compliant result in a dialog and are respected. You are not automatically treated as a criminal for a paperwork footfault.
Just wanted to comment that the German government is trying to force, all, even those who are no longer German citizens, to pay taxes on their German pension retroactively from 2005 onward. This happened to my father, who immigrated to Canada in the ’70s and became a Canadian citizen in 2000 (he gave up his German citizenship by becoming a Canadian). He just received his tax bill from Germany in October 2012.
Kirsten;
Thank you for that interesting example – of retroactive extraterritorial taxation, on those who aren’t even citizens anymore. Cash strapped governments all rushing to grab at whatever they can. How can we plan when we have no control over what they will do – and they can do it years retroatively? How can anyone keep track of multiple country claims on the income of the same individual?
*Same problem for my mother…..How can this be stopped? It seems absurd. Has anyone had any success with this? Advice would be appreciated.
@Gary…
Just want to acknowledge your question and appreciate you posting it. I am not sure that we have many Germans reading here, but hopefully, someone will have an answer for you. Sadly, I don’t have one.
Just the same, welcome to Isaac Brock.
My father had been living in Canada since the early 60s as well, and was also a Canadian citizen. He was getting a German pension and dies in August 2015. I just got a tax letter from Germany, telling me that he owes taxes from 2011 and on. They are going to send me an assessment, and I guess it will be as much as they decide he should pay.
Interesting, I was just talking with my German born uncle yesterday who was talking about something similar as in Germany was demanding pension money back from him. There’s obviously some “smoke” here.