‘The harassment is over’: Court win ends ruinous German taxation of US military paychecks
Stars and Stripes July 28, 2023
The German government this week issued a new directive that bans all its tax offices from seizing the military pay of U.S. personnel stationed in the country, ending a yearslong dispute that has wreaked financial havoc on scores of Americans.
“The harassment is over,” said Landstuhl attorney Patrick Rietz, whose victory in a lower German tax court on behalf of a U.S. military couple sparked the turnaround.
The decision by the German Federal Finance Ministry on Wednesday came after a state tax ministry dropped its appeal of the lower court decision.
The federal ruling states U.S. military and civilian personnel who arrived under the NATO Status of Forces Agreement can’t have their pay taxed by Germany, regardless of their “will to return” to the United States.
For years, local tax offices have garnished anything from thousands of dollars to six-figure sums in tax penalties from service members and Defense Department workers, even after they left Germany in some cases.
The federal ministry’s directive was in line with the November 2022 court decision in Rietz’s favor by the Rheinland-Pfalz Finance Court, which ruled attempts to tax U.S. military pay violate the NATO troop treaty.
“The new interpretation of the law is to be applied in all open cases,” the Rheinland-Pfalz Finance Ministry said in a statement to Stars and Stripes on Thursday.
Going forward, salaries for service members, Defense Department civilians and contractors with appropriate SOFA status will be “tax-exempt regardless of their intention to return, provided that the other requirements of NATO troop status or the supplementary agreement are met,” it added.
German tax offices — especially in the greater Kaiserslautern area, which is home to tens of thousands of U.S. troops and civilians — long argued personnel must be able to prove that they intend to return to the United States if they want to avoid paying German taxes on salaries already taxed by the U.S. government.
Being married to a German, sending a child to a German school or extending overseas tours were all factors that tax offices used to build cases against Americans.
Even when Americans went back to the U.S., the ultimate proof of a “will to return,” the German version of the IRS continued its pursuits.
The reversal comes three years after the U.S. lodged a formal complaint over the matter, after Stars and Stripes put a spotlight on the difficulties facing military families.
But a diplomatic solution remained elusive, leaving individual service members and civilians to fight it on their own.
The situation sparked a grassroots effort by members of the military community either affected or outraged by how German authorities were able to go after American military pay virtually unchallenged.
“It’s truly insane (German tax offices) were able to get this far,” said Mouna Litz, a spouse who has been part of the grassroots campaign. “It took people getting together because numbers mean power.” Families “were intimidated into paying because they were made to believe they had done something so incredibly wrong.”
Mike Goff, a military retiree who lived in Germany for years before moving to Florida in 2022, spearheaded a letter-writing campaign directed at everyone from senior U.S. military officials to Germany’s top elected politicians.
He also gave counsel and moral support to friends who found themselves the targets of German tax collectors.
“Lots of NATO-SOFA-protected Americans lost marriages, thousands of dollars and sleep because of (tax office) hatred of Americans,” he said. “This is the end of the battle waged only by Americans, with little to no help from Washington, D.C.”
For more than a decade, German tax offices went after American military civilians mostly out of the public eye.
However, in 2020, when a tax office near Ramstein Air Base went after an active-duty airman married to a German, the situation escalated.
Service members and Defense Department civilians began to step forward in greater numbers, indicating the problem was more widespread than the U.S. military realized.
The consequences for those who got entangled in the German system have been severe.
For example, the Landstuhl-Kusel tax office, which once acknowledged it had roughly 400 open cases against SOFA-status Americans at any given time, has imposed penalties of more than $300,000.
No full accounting of how many Americans had their money taken has been made.
The penalties involved taxes on pay stretching back years. Tax authorities based penalties on housing allowances and privileges such as tax-free shopping at military installations and even access to free base fitness centers.
In at least one case, a German working as a U.S. military criminal investigator handed over inside information about on-base purchases to German tax collectors.
Georg Weishaupt, a German tax specialist who became aware of the struggle after the public attention, began writing articles in prominent domestic finance journals that highlighted how his government was undermining NATO by violating SOFA guidelines. He also helped numerous Americans involved in tax fights.
The new federal directive provides comprehensive tax protection for members of the military community who came to Germany with SOFA status, he said.
“You can’t overstate the magnitude of this,” Weishaupt said.
The ruling makes clear that the U.S. military pay of those with SOFA status is shielded from local finance offices regardless of how much time they spend in Germany or whether they have special ties, such as being married to a German, Weishaupt said.
U.S. European Command on Friday welcomed the German Finance Ministry’s decision that exempts SOFA-qualifying U.S. military and civilian personnel from German taxation.
“This resolution has brought to an end a long-standing issue that has affected many U.S. Department of Defense personnel and their families stationed in Germany,” Navy Capt. Bill Speaks, EUCOM spokesman, said in a statement. “We thank Germany for their consideration of this important matter and appreciate their decision, which will only strengthen our two countries’ relationship, a relationship deeply rooted in common values.”
Still, unanswered questions remain for those who were ordered in the past by German courts to pay up in cases already settled. One is whether there is a legal route to getting refunds.
Jason Ille, an Army civilian who now lives in Alaska, was issued a nearly $350,000 tax bill in 2018 by the Kusel-Landstuhl finance office, which oversees the area around Ramstein Air Base.
“I had to start my life over from nothing,” Ille said. “They froze and drained all my accounts and then said I could appeal but it would cost me $18,000 to reopen. … I would love to see the $350,000 they stole from me, but I don’t expect anything.”
Legal challenges are possible, but on cases that already have been settled it could be an uphill legal fight, Weishaupt said.
He added it’s theoretically possible for tax offices to make a longshot argument that some personnel aren’t SOFA-eligible. Still, the new directive is a game-changer, Weishaupt said.
The German government’s turnaround was likely a confluence of factors. Among them, a situation that was under the radar was elevated to the highest levels of government, with the public exposure and outcry garnering the attention of Defense Secretary Lloyd Austin, who raised the matter with his German counterparts.
Meanwhile, last year’s court case with a fresh argument made by Rietz gave a legal opening for the German Finance Ministry, which in the past sited previous court decisions as a justification for taxing troops.
“This was a joint effort by a bunch of people at various levels to get to this point,” Weishaupt said. “The stars aligned, and everything fell in place at the right time.”