LS 3 PIT - Personal Tax Liability

Question 1

Characteristic PIT?

1. definition
2. tax subject
3. tax object
4. personnel tax
5. direct tax

Answer 1

• its an income tax
• natural person is tax subject
• tax object is income
• personnel tax: personal characteristics are asked, e.g. marriage or children, are relevant for income determination
• direct tax -> natural person burdens tax

Question 2

What does Unlimited Tax Liability mean in terms of the PIT?

Answer 2

• Principle of residence: if natural person is resident in germany, income is subject to tax in Germany no matter where it is generated -> UTL means that German residents have to pay personal income tax on their worldwide income
• §1 I EStG -> natural person subject to PIT if resident in Germany (habitual place of abode, §8 AO and §9 AO)

Question 3

Whats the Principle of Residence?

Answer 3

• based on notion that people shall contribute towards public services for them by the country in which they have their center of living

Question 4

What does Limited Tax Liability mean in terms of the PIT?

Answer 4

• people who have neither dwelling nor habitual abode in Germany are subject to tax only on income derived within Germany -> Limited Tax Liability
• focus here is on location of source of income, not on location of tax subject
• §1 IV EStG

Question 5

What is Juridical Double Taxation? And how can it be solved?

1.
2.
3.

Answer 5

• here, the same taxpayer is charged twice in the same period for comparable taxes on the same income by two different tax jurisdictions
• Solution: 1. Unilateral Rules: Crediting foreign taxes to domestic taxes, $34c EStG)
• 2. Bilateral Rules (Double Tax treaties -> division of the right of taxation/ allocation)

Question 6

Whats the ability to pay principle and what does it imply?

1.
2.

Answer 6

• implies that only the dispoable income should be taxed
• the disposable income is to be determined on the basis of the objective net principle and the subjective net principle

Question 7

How can we determine…

1. The objective Ability to Pay?
2. the subjective ability to pay?

Answer 7

1. objective: focus on business related income and expenses -> tax should only apply to net income from work or business (income - necessary expenses for work = result of gainful activity (net income)
2. subjective: focus on personal living costs and necessities -> taxed should not be the income needed for basic living expenses (e.g. food housing essential health care) (net income - unavoidable private expenditures = disposable income = basis of assessment