Prologue
This post draws heavily from the reporting of John VanDiver who has written a number of articles in Stripes. His most recent article is here:
Opposition is building against attempts by Germany tax authorities to strong arm US troops into paying massive tax penalties. Germany is the only country where US forces face this threat. https://t.co/y4e5A411Y8
— John Vandiver (@john_vandiver) January 25, 2021
“You don’t want to be chased and harassed by a government office. It is scary,” said Melissa Howell, the spouse of a U.S. soldier who is being targeted by a tax office in Germany’s Landstuhl area. “I don’t know how they expect people to come up with that money.”
Howell, a German who lives with her American husband and children, said she ran into trouble in June when she went to file her taxes at the local finance office.
She said she was interrogated about her husband and told to fill out a questionnaire that probed information about his employment.
She then received a letter ordering her to hand over her husband’s W-2 and other tax forms.
“I did it because I didn’t know. I found out that
was a mistake,” she said.
After that, she got a phone call from the tax office, saying that their case was getting handed over to a case manager who handles “American-German couples.”
As reported by John VanDiver in Stripes – July 27, 2020 – ‘Harassed’ by German tax offices, more US military families face financial threats
Certain US Soldiers In Germany Targeted By German Tax Authorities For Taxes On Their Military Wages – Reminiscent Of The “Oh My God Moment
Many Americans abroad have experienced the “Oh My God Moment.” This is the moment that they learn that they are targeted by the USA – a country that they don’t live in – for taxes on their non-US source income. Well, it appears that for some, the shoe is now on the other foot. Germany is apparently targeting certain US soldiers – stationed in Germany – for taxes on their US military pay! The US claim is NOT based on any connection with the United States (other than circumstances of birth). At least (to its credit), Germany’s claim is based on a connection to Germany that makes these US soldiers “tax residents” of Germany. Therefore, the “moment” may be the same. But, the justification for taxation is not he same. To put it simply: Germany is claiming that when the circumstances of a US soldier’s stay in Germany ceases to be “solely” for military service AND their factual circumstances meet the test for tax residency in Germany, they are are subject to German taxation.
Analysis
In an ongoing story, that is certain to be of interest to Americans abroad, Germany has begun treating certain US Military Personnel as tax residents of Germany. In other words, Germany is imposing tax (and apparently penalties) on the income earned by US military personnel stationed in Germany. The starting point is that US Forces in Germany (and other countries) are governed by the SOFA (“Status Of Forces Agreement”) agreement. Among other things, the SOFA agreement exempts US service personnel from being treated as tax residents of the country where they are serving. In simple terms: As long as the individual serviceman meets the conditions in the SOFA agreement, he/she would NOT be treated as a tax resident of Germany.
The provisions of the NATO SOFA are unremarkable. What is remarkable is that Germany appears to be the first country, to determine that certain US Military Personnel, are not entitled to use SOFA as a “shield” against being treated as a tax resident and therefore subject to taxation.