Taxation of severance payments under the DBA-France

October 31, 2024

In its ruling of 1 August 2024 (VI R 52/20), the Federal Fiscal Court (Bundesfinanzhof, BFH) decided that severance payments to an employee resident in France can also be taxed in Germany (State of employment) if the severance payment relates to the period during which the employee lived and worked in Germany (in accordance with Article 13, para. 1 DBA-France).

However, the DBA-France deviates from the OECD Model Convention here, so that this decision cannot be applied across the board to other countries. Since the OECD-MA and the OECD – and thus regularly also the contracting states of the DBA – generally assign the right of taxation for the severance payment to the state of residence, double taxation conflicts in the case of severance payments are not unlikely.

Severance pay therefore remains a sensitive topic, especially since Germany has introduced a regulation in the form of Section 50d (12) of the German Income Tax Act (EStG) that overrides the fundamentally different opinion of the OECD.