Tax Exemption for European Stipends

Pursuant to German law, stipends of German charitable institutions are exempted from taxation. So far so clear. What about stipends from European charities? Does this count "as German"? The BFH gave its say in its judgment of September 15, 2010 (re X R 33/08).


A French foundation granted a German physician a stipend for her research on thrombosis. This foundation is not subject to German taxation; however it does meet German legal understandings of a charity. The physician considered this grant as tax exempt and so declared it in her return. The tax office did not accept it and wanted it to be understood as taxable income. The office's argument was that the wording of §3 no. 44 EStG required the granting institution to be subject to German taxation.

The Federal Tax Court considered that §3 no. 44 EStG can only be construed in accordance with the ruling case law of the European Court of Justice. In other words, stipends from a charitable institution from a member country of the EU which meet the requirements of §5 I no. 9 KStG and §§51 ff. AO must be exempt from German taxation. To the opinion of the court, it is not justifiable that the general denial of the exemption; it has to suffice that this foundation would meet the domestic requirements for a charitable organization. Anything else would be conform to European law.


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