Why does Revenue have an interest in EU rental income?

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murphaph

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This is just to satisfy my curiosity. I don't have an issue with this myself (but could in the future I suppose).

I live in Germany. I am resident, ordinarily resident and domiciled here. I rent out a house in Dublin and declare it to revenue and pay my taxes there and here's the crucial bit...the German tax authorities do not want to know about it (since 2008).

From my little bit of research it is because the German tax code has since 2008 implemented a European directive that states that income from fixed property (amongst some other things like ship and aircraft rental) should be taxed only in the country that the property is physically located in.

The German tax authorities are not known for their "letting people off with it" attitude and if anything was due to them, they'd have it, but they have written to people here in Germany with British/Irish etc. rental properties and told them explicitly NOT to include them on their German self assessment forms any more.

If this is an EU directive they have implemented, why does Revenue (and AFAIK HMRC) still want to tax rental income derived outside Ireland but in another EU state?

Anybody know?
 
That is very interesting, a recent newspaper report over here suggested that the Irish could have up to 100000 properties overseas, I would like to know the answer to the question you pose but reckon Revenue point will be that they want to know if the oversea's property was purchased with undeclared income, hard to see them give this one up but hopefully somebody on AAM will have some knowledge to assist.,
 
Income from securities and possessions outside of the State are taxable to income tax in Ireland under Case III of Schedule D, on a person who is resident and ordinarily resident.

I haven't heard of this EU directive you're talking about, and while I'm not saying you're wrong, I have my doubts about the accuracy of what you are saying...

There have been changes in the accounting for VAT (place of supply) in relation to fixed property alright, is it possible that this is what's causing confusion here..?
 
murphaph said:
From my little bit of research it is because the German tax code has since 2008 implemented a European directive that states that income from fixed property (amongst some other things like ship and aircraft rental) should be taxed only in the country that the property is physically located in.
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Taxation, apart from VAT, has always been outside the realm of EU, so I'd find it a bit strange that there is something like dating back to 2008. Do you have a reference for it?
 
MURPHAPH - You seem so sure that non-German people fully resident in Germany are exempt from paying tax on income earned outside Germany.

I wonder if you are confusing someone who is a foreign resident with someone who has a foreign residence (two seperate things, based on the rules as to what makes a person "resident") the former is liable for income from any source, the latter is liable only for income earned in Germany.
You appear to be a foreign resident ,not someone with a foreign residence and therefore you are treated no different from a German in germany .

Klar ?
 
Hi all,
glad to have some banter going at last! The rule applies to German residents with residences in other EU/EEA states (not Germany and not "third states" like the US, Canada etc.). It has nothing to do with being a foreign resident living in Germany. I am taxed here like a German who has lived here all his life as I've been here over 3 years now.

I'm afraid the only links I can provide are to German language documents and toytownGermany.com, an English language forum for expats living in Germany, where this first came to my attention.

http://de.wikipedia.org/wiki/Progressionsvorbehalt#Deutschland

Nach deutschem Einkommensteuerrecht unterliegen dem Progressionsvorbehalt gemäß § 32b EStG u.a. folgende steuerfreien Einkünfte/Einnahmen:

Einkünfte, die nach einem Abkommen zur Vermeidung der Doppelbesteuerung oder einem sonstigen zwischenstaatlichen Übereinkommen steuerfrei sind, für die jedoch in diesem Abkommen der Progressionsvorbehalt in Deutschland vorgesehen ist. Dies gilt ab 2008 nur noch im Bezug zu Drittstaaten. Innerhalb der EU/EWR werden sowohl positive als auch negative Progressionsvorbehalte nicht mehr angesetzt, wenn sie sich aus Einkünften aus Land- und Forstwirtschaft, Gewerbebetrieb, Vermietung und Verpachtung oder der Schiffsüberlassung ergeben. § 32b Abs. 1 Satz 2 Nr. 1 bis Nr. 5 Einkommensteuergesetz (EStG) ist zu beachten.
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Basically it lists various types of income that affect income tax rate (but are not actually taxed themselves) and it states that income from rent derived from other EU/EEA states is neither taxable nor to be used to influence the rate of tax paid on other income. (Drittstaaten means "third states", ie, foreign countries that do not belong to the EU/EEA).

This has been borne out in correspondence from the German tax office. This was confirmed by a tax advisor on this thread on toytown germany:
http://www.toytowngermany.com/forum/index.php?showtopic=160157&st=0

(post 16)

I am actually not sure now if this is an EU thing at all or just a German rule change. I was sure I had read somewhere that it was due to an EU rule but perhaps not.
 
Palerider said:
That is very interesting, a recent newspaper report over here suggested that the Irish could have up to 100000 properties overseas, I would like to know the answer to the question you pose but reckon Revenue point will be that they want to know if the oversea's property was purchased with undeclared income, hard to see them give this one up but hopefully somebody on AAM will have some knowledge to assist.,
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I have heard that the German tax office often requests a copy of the deeds/contract of sale to establish date of purchase because until 10 years have elapsed from the time of purchase, property sold by a German tax resident is taxable for CGT in Germany if a CG is made. Apart from that, they have no further interest in the property.
 
Sorry to post more links to german language sites but that's the nature of the beast and perhaps some here can understand the text:

http://www.steuernetz.de/aav_steuernetz/lexikon/K-38285.xhtml?currentModule=steuern

In that document it states (paraphrased) the following:
Rental income losses from outside Germany were not allowed to be included in German tax returns unless they were offset against gains in the same foreign country in the same (or future) time periods. The EU Commission told Germany that this was against EU law and that they needed to allow foreign (EU) rental income losses to be offset against other income types in Germany, if Germany wanted to tax foreign (EU) rental gains. Germany's interim response was to immediately allow the offsetting of foreign (EU) rental income losses against domestic German tax liabilities (of other types) but the final solution (no pun intended) from the German lawmakers was to prevent both foreign (EU) rental income profits AND losses from being included on German tax returns. This (apparently) conforms to EU law and is easier for the German tax offices to administer (I presume that is their reasoning for this course of action).

I imagine in Ireland that Revenue allows you to offset both foreign (EU) income losses and gains against domestic rental income. If not, they might also be in breach of the same thing that tripped up the German tax man. Can anyone answer that:

What foreign (EU) rental income losses can be offset with Revenue and against what sort of income can they be offset?
 
Foreign rental losses can only be set against foreign rental profits or brought forward to be set against foreign rental profits in a later period. They cannot be offset against Irish rental profits.

Revenue is not concerned with which country or countries the foreign income is located, there is for example no problem with setting a loss on a German property against a gain on an American one.

More info here

Sybil
 
Sorry to have misunderstood your opening post. Your last few posts are fascinating and if I understand correctly:-

If an EU country taxes rental income from another EU state then it must allow any loss from that source to be offset against the persons income from within the country.
But if the country's revenue authority so decides it can ignore altogether any other EU income, whether profit or loss.

As Mrs Vimes says, the Irish Revenue is doing as the Germans did and this is, you say, against EU law.

If this is the case then there's a lot of Irish people who are losing a lot on rental properties in some EU states -like Bulgaria - and not one penny of this loss can be offset against Irish income of any sort , including rental.

This is interesting and ,if true, surprising -because I can't imagine that the EU has allowed Ireland to get away with a supposed breach for so long.

The tax accountants reading this will doubtless be checking up on this !

P.S. From your posts it seems the German taxman still asks whether one owns property abroad, but if in the EU need not give rental details. Is that right?
 
Mrs Vimes said:
More info here
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I had a look at the revenue link you posted and noticed this:

However, there is no relief for a loss that arises in a situation in which a landlord’s maintenance, insurance, repairs and management expenses consistently exceed the rent receivable from the property

Is that a new thing, it looks like revenue have modified their guidelines? How would they measure consistently?

I could easily see a situation where someone had bought say a holiday home in remote Ireland and cannot now let it or only let it sparodically and that the expenses listed by revenue would be less than the rent. I can specifically remember a poster on AAM who said they were receiving basically no rent for a property like that. I note they did not mention mortgage interest.

In relation to foreign rents, this is going to be a very complex area, you have to deal with the way rental is treated in the country of the property, the way it is treated in Ireland and then also look to double taxaction treaties. I imagine the average revenue person wouldn't know the rules on this easily, nor would I imagine revenue having clarified the rules for countries other than say UK, France, Spain & US. Maybe Bulgaria. Probably Irish revenue do not want to get into whether loses in Bulgaria should be allowed against Irish losses, will initially tell the taxpayer and indeed accountant that they are not allowed and no ordinary taxpayer would be able to fight revenue as you'd have to go to the High Court. Maybe the Accountants professional body have guidelines on this area of tax, or maybe they've never heard of the German revenue's dealings with the EU Commission rules.

Just another thought, for anyone who is now going to contest the Irish revenue rules with Revenue and gets nowhere, they could appeal to the EU Commission, or 'threathen' Irish revenue with doing so, citing the German ruling that Murphaph outlined. I'm imagine that Irish revenue would very quickly Perk up on this issue. As another poster said no doubt Irish accountants are now looking into this.
 
oldnick said:
P.S. From your posts it seems the German taxman still asks whether one owns property abroad, but if in the EU need not give rental details. Is that right?
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You generally declare the income in a German pay and file and then the tax office informs you that they do not want to hear about it again. Some folks (as far as I can gather from the net) have been asked to prove date of purchase of foreign property, just in case they sell up and are liable to CGT, which Germany still levies.

I am trying to fing out on Toytown, the exact reasons for the German rule change, but it does have to do with EU law according to the memo sent by the Federal Finance Ministry to the state tax offices. Apparently this has to do with Germany's tax treaties as well, so it may not affect someone with a property in Bulgaria, but should affect someone with one in Germany who pays (say 25%) income tax in Germany on the rent and then has to pay Revenue the rest (assuming they're on top rate of income tax).

I am no expert here and may be completely wrong, but I think it warrants a bit of poking around ;-)

Liegt für die in § 2 a Abs. 1 Nr. 1-6 EStG genannten ausländischen negativen Einkünfte das Besteuerungsrecht infolge eines Doppelbesteuerungsabkommens dagegen nur beim ausländischen Quellenstaat (Freistellungsmethode), hat die deutsche Finanzverwaltung früher die Einbeziehung in den inländischen negativen Progressionsvorbehalt untersagt. Doch damit kam sie bei den Gerichten nicht durch, die darin bei innerhalb der EU bzw. des EWR erzielten Verlusten einen Verstoß gegen Gemeinschaftsrecht sahen (in Bezug auf Verluste aus Vermietung und Verpachtung: EuGH, Urteil vom 21.2.2006, C - 152/03, DStR 2006 S. 392).
Der deutsche Gesetzgeber hat darauf reagiert und den Progressionsvorbehalt für Einkünfte aus Vermietung und Verpachtung sowie aus Betriebsstätten, die in einem Land der EU oder des EWR erzielt werden, ganz abgeschafft (§ 32b Abs. 1 Satz 2 und 3 EStG). Damit gehen weder die Verluste in den negativen noch die Gewinne in den positiven Progressionsvorbehalt ein und sind daher in der deutschen Steuererklärung nicht mehr anzugeben. Diese Neuregelung gilt seit 2008 (§ 52 Abs. 43a Satz 2 EStG).
Somit gilt: Haben Sie in einem EU-/EWR-Staat mit einem entsprechenden DBA (z.B. Österreich) eine vermietete Ferienwohnung, geben Sie in Ihrer deutschen Steuererklärung weder die positiven noch die negativen Vermietungseinkünfte an.
Stammen die Verluste aus Drittstaaten außerhalb der EU bzw. des EWR, mindern bei der Freistellungsmethode die Verluste den Steuersatz auf Ihre inländischen Einkünfte nicht. Denn für diese Verluste gibt es keinen negativen Progressionsvorbehalt. Eine Angabe in der Steuererklärung ist somit nicht möglich. Dagegen unterliegen Gewinne dem positiven Progressionsvorbehalt und erhöhen die Steuerbelastung auf Ihre übrigen Einkünfte. Die Gewinne sind daher in der Anlage AUS anzugeben.
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Source: http://www.steuer-spar-berater.de/?cID=S-266190

I'll do a rough translation:
If the right to tax foreign income named in § 2 a Abs. 1 Nr. 1-6 EStG (Income tax taw) lies only in the foreign source country according to a tax treaty, the German tax authorities earlier prohibited the inclusion of losses from this income in the German tax returns for the purposes of reducing one's German tax liabilities. But the courts wouldn't allow this, because preventing such losses (from EU/EEA states) being included was seen as contrary to (European) Community law (European Court, judgement from 21.2.2006, C - 152/03, DStR 2006 S. 392). The German lawmakers reacted by abolishing the inclusion of foreign rental income on German tax returns from inside the EU/EEA completely. With that, neither profirs nor losses (from foreign EU/EEA property) were to be included on German tax returns. this new rule is in effect since 2008.

The status quo: If you have a rented out holiday home in in EU/EEA state you neither include profits nor losses in your German tax return. If the losses arise from property OUTSIDE the EU/EEA, then these losses cannot be used to reduce your domestic tax liablity. It is not possible to enter such losses on the tax return forms. In contrast, profits from properties located outside the EU/EEA must be included and will be used to increase your remaining German income tax rate if appropriate. The profits should be included in anex AUS (of your tax return form).
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I dug a little deeper and found the judgement from the European Court Judgement that led to the changes in german law:
http://curia.europa.eu/juris/liste....cs=O&avg=&page=1&mat=or&jge=&for=&cid=2345051

(It should be noted, Ireland also has a (I think) very similar tax treaty with Germany that grants the country of location of the property the right to tax the income from it). Something surely for one of our more "legal" minded members here to take a look at.

Ireland's Tax treaty with Germany states:
Article 6
INCOME FROM IMMOVABLE PROPERTY

1.
Income derived by a resident of a Contracting State from immovable property
(including income from agriculture or forestry) situated in the other Contracting State
may be taxed in that other State.
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(sounds identical to the French/German treaty (though this one from the revenue tax treaties website says it is not yet in effect, though signed in 2011).
 
OK. I haven't gone in depth into this but did a little rooting around (skimmed through this little beauty: http://curia.europa.eu/juris/showPd...EN&mode=lst&dir=&occ=first&part=1&cid=2352745), and I'm sure there's no Irish issue here - tax professionals in Ireland are well aware of the Ritter-Coulais ruling: ([broken link removed]) the relevant part being: "The European Court of Justice (ECJ) has ruled in the case of Ritter-Coulais (C-152/03) that the non-allowance of foreign losses for the purposes of determining an individual's tax rate is contrary to the free movement of workers. Under German law foreign income could be taken into account in determining the appropriate tax rate but foreign losses could not."

That is fundamentally different to how foreign rental losses are treated in Ireland. Essentially, and as Mrs Vimes pointed out, in Ireland you are entitled to use foreign rental losses from any property in any other country to reduce rental profits from any other foreign properties. Income (and losses) from foreign property are distinct from rental income from property in the State; aggregate income from Foreign property is assessed under Case III here, and aggregate Irish rents are assessed under Case V.

Irish rental losses under Case V are not allowed to reduce total income for tax purposes, but must be carried forward against future Case V (Irish sourced rental) income. (You calculate the income or loss from each property individually, and aggregate the figures, hence you may end up with a loss).

Likewise foreign rental income/losses under Case III.

So there is no inconsistency in treatment, and no need for anyone to be rushing off to consult Senior Counsel - you can be quite sure the people who get paid the big bucks to find the loopholes have already seen this judgement and satisfied themselves about its impact on the Irish tax code...
 
mandelbrot said:
So there is no inconsistency in treatment, and no need for anyone to be rushing off to consult Senior Counsel - you can be quite sure the people who get paid the big bucks to find the loopholes have already seen this judgement and satisfied themselves about its impact on the Irish tax code...
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I think you're probably right tbh, but remember the judgement was made in (EDIT) 2006 and it was 2008 before the German Tax authorities made the connection between the Ritter-Coulais case and realised they shouldn't be disallowing the rental losses on EU lettings for the purposes of reducing ones tax rate in Germany. Germany has a load of well paid tax professionals also looking for loopholes but apparently didn't find this one for quite some time.

There would certainly have been many people in Germany paying increased income tax on their German PAYE income because of their notional foreign income, from places like Ireland once the relevant tax treaties had been signed, I think.

I don't think this ruling and even the rule change are that well known in Germany tbh. There are several financial consultants on Toytown Germany who didn't even know about it and they'd specialise in expat tax affairs. It only came to light on that forum last year, despite the tax code having changed in 2008. It would affect a large number of people on that site, so to me it seems it should have come to light much earlier, if the judgement and resulting rule changes were as well known as you think.

In Germany, the tax office used to only allow foreign rental losses to be offset against other foreign rental losses (from the same country), and not against any German income tax liability and this was found to be unfair. This is pretty much still the case in Ireland, right?

Why can't I offset a rental loss in Germany against a rental gain in Ireland (assuming I'm Irish resident), when I can offset a rental loss in ireland against a rental gain in Ireland?

I'm somewhat playing devil's advocate here, as I'm not a legal eagle or tax professional, so just throwing it out for debate. As I mentioned earlier, I don't stand to gain or lose either way.
 
I can't believe I let myself get sucked into this!!

I think the legal point at issue here has actually gone slightly over your head and it's not as simple as your post above suggests - it is in essence about the EU rules on freedom of movement for workers. The best that I can do to distil the issue is to quote the most telling parts of the opinion of the advocate general:

"86. The fourth point of the first sentence of Paragraph 2a(1) of the EStG 1987, which provides, as will be recalled, that negative foreign income arising from the letting of a property situated in a foreign State can be set off only against foreign income of the same kind and arising in the same State, has the effect, in German law, of excluding such income, taken in isolation, not only for the purposes of determining taxable income but also in the computation of the applicable rate of income tax in Germany."​

"87. In short, a person subject to tax on his or her total income in Germany, who is owner occupier of a house in another Member State and who has no rental income in that State, cannot claim losses arising from the owner occupancy of the property in the computation of his or her tax liability."


"88. By contrast, the file shows that if the same person is owner-occupier of a house in Germany he or she can claim such negative income for the purposes of the computation of his or her income tax."​


"89. The German tax legislation therefore does indeed have the effect of excluding non-residents from the benefit of a tax advantage, which constitutes a difference in treatment detrimental to non-residents."​


There is simply no comparison between the issue that arose with the German system and that which applies in Ireland - you are looking at the effect that the ruling had on how the Germans administer their tax system, and inferring from their administrative changes that a similar end result is needed in Ireland when it's not actually the case - the distinction that the Germans were making is not made in Irish legislation, everyone's foreign rental income / losses are treated the same. (EDIT: by everyone I mean everyone who is chargeable to tax here on their worldwide income and gains i.e. tax residents.)

Elsewhere in that opinion it is made clear that direct taxes are largely a matter for individual member states (or a couple of member states collectively in the case of double taxation treaties). The EU / ECJ only get involved if/when there is a conflict with the Treaty (as Paragraph 89 above illustrates).
 
Thanks for taking the time to go through it MB. I hadn't read all of the opinion and perghaps some of this is over my head, but humour me ;-)

Wrt this bit:

"89. The German tax legislation therefore does indeed have the effect of excluding non-residents from the benefit of a tax advantage, which constitutes a difference in treatment detrimental to non-residents."
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Person A lives in Ireland and has no other income except for rental income derived in Ireland. They get the single person tax credit (plus any others they qualify for).

Person B lives in another EU state and has no other income except for rental income derived in Ireland. They get no reliefs or tax credits and thus pay more tax than person A.

Does that not also have the effect of excluding non-residents from the benefit of a tax advantage, which constitutes a difference in treatment detrimental to non-residents?

Is this also in keeping with the judgement?
 
murphaph said:
Thanks for taking the time to go through it MB. I hadn't read all of the opinion and perghaps some of this is over my head, but humour me ;-)

Wrt this bit:



Person A lives in Ireland and has no other income except for rental income derived in Ireland. They get the single person tax credit (plus any others they qualify for).

Person B lives in another EU state and has no other income except for rental income derived in Ireland. They get no reliefs or tax credits and thus pay more tax than the Irish resident.

Does that not also have the effect of excluding non-residents from the benefit of a tax advantage, which constitutes a difference in treatment detrimental to non-residents?

Is this also in keeping with the judgement?
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Dog with a bone... I Knew I should've went with one more paragraph!:

90. However, such difference in treatment does not constitute discrimination contrary to the Treaty if the situations of residents and non-residents are, as a rule, objectively different.​
 
murphaph said:
lol. Come on MB, I'm not the only one who has shown interest in this ;-)


What does that mean in layman's terms?
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Essentially, it means that a resident and a non-resident are not the same.

The whole issue in this case was that the taxpayers in question lived across the border in France but were taxable on their worldwide income in Germany, and therefore effectively treated as tax residents, except that they were discriminated against by not being allowed a deduction that any other "resident" taxpayer was entitled.

A non-resident is not taxable on their worldwide income in Ireland and therefore their situation is clearly objectively different from an Irish resident.
 
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