Non-Residents entitled to Child Benefits while receiving Domestic Income
Traders, who only work on a monthly basis without domicile and without habitual residence in Germany, can apply to be taxed in Germany. During this period, can they receive child benefits? The Federal Finance Court with judgment of March 14, 2018 (re III R 5/17).
Tradesman Freelancing in Germany Seeks Child Benefits for his Active Month
Pavel lives with his family in Poland. In Germany, he freelanced monthly in the construction industry. For the year 2012, the plaintiff claimed, inter alia, child benefits for the month of May. During this time, he worked on a construction site and earned trade income. He did not receive remuneration for his work until August 2012. For this reason, the office granting child benefits (Familienkasse) was of the opinion that the child benefit should be allowed exclusively for this month. However, the family fund had already granted child benefits for August for other reasons. Since Pavel was not satisfied with this decision, he sought legal recourse in court.
BFH: Month Principle for Child Benefits
Pavel was unsuccessful in court. The child benefit claim prerequisites in such cases are the treatment of the foreigner as a fictitious unlimited taxable entity (§62 I 1 no. 2 lit. b EStG) and the residence of children in Germany or in another EU country (§63 I cl. 6 EStG). Even if the alien would be regularly treated as partially subject to German taxation for the whole year according to §1 III EStG, child benefits will only be granted on a monthly basis, pursuant to §66 II EStG.
Temporary Self-Employment at Time of Being Hired
As the BFH explains, they had previously only decided cases pertinent to gainfully employed taxpayers working in Germany on a temporary basis, and whether the accrual of salary leads to eligibility for child benefits. In regard to freelancing persons, the period of the assignment and not the payment is relevant for the eligibility of child benefits. A typical example of employed persons only temporarily subject to German taxation are seasonal workers; persons hired exclusively during and for harvest.
BFH left expressly unanswered whether the situation for employees will also change to accrual based eligibility. The reason for the differentiation is to prevent contingencies or intentional changes in legal situations to artificially trigger child benefits.