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An analysis by Flick Gocke Schaumburg, Taxand Germany
The German government has recently proposed the 2024 Annual Tax Act Draft, proposing amendments to how employment income, specifically from “gardening leave” (a period after employment termination where the employee is still paid but not working), is taxed in the country.
Currently, if an employee on gardening leave resides abroad, their remuneration is not subject to German tax. The new law will extend limited tax liability to include this income if the employee would have worked in Germany. This ensures that such payments are taxed in Germany, even if the employee is not physically working there during the gardening leave.
The changes also provide guidelines for applying double taxation treaties (DTTs) to this income, specifying that such remuneration is considered as earned in Germany. This aligns with OECD commentary and may require domestic employers to assess the tax liability for employees on gardening leave.
Dr. Christian Hick from Flick Gocke Schaumburg analyses the proposed changes in more detail here.
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