Michael Eriksson's Blog

A Swede in Germany

Some points on the German IRS

with 3 comments

Detailing everything wrong with the German tax system would take an immense effort. However, a few points relating to jurisdiction and responsibility:

  1. Despite taxes being handled almost uniformly through-out Germany, no reasonable centralization has taken place. Instead each individual town has its own “Finanzamt”*, with large cities even having several, independently working, each poorly managed and filled with incompetent pea-counters.

    *I will use the German “Finanzamt” (pl. “Finanzämter”) when referring to the individual “office”—each being a somewhat independent government agency or sub-agency. When I speak of the overall collective of various tax-related agencies and/or the system as a whole, I will in (a slight misnomer) adopt the U.S. term “IRS”.

    This does not only cause inefficiencies compared to having a single entity handling taxes*, it also leads to problems like unnecessary changes of contact persons and addresses, additional efforts for tax payers to inform and coordinate after moves, the Steuernummer complications below, and delays when different Finanzämter need to coordinate the dealings concerning one tax payer (as with my recent move to Wuppertal).

    *For reasons like economies of scale, the easier supervision, a greater ability to stream-line, a greater ability to pick good staff, whatnot; especially, when this single entity has a considerably smaller number of offices. This, obviously, with the reservation that if no honest attempt is made by the IRS to do better, the advantages might not matter…

    The main advantage that this brings is the ability to personally deliver a message, thus removing postal delays and stamp costs—but after the abolishment of paper forms, there are few or no messages where postal delays are relevant and the stamp costs are usually smaller than the cost of the extra distance compared to the next post box. A secondary advantage is the opportunity to talk to someone physical in case of problems or need for clarifications—but considering the low competence levels, the usual lack of “customer” friendliness, and the benefits of having a paper trail* for any dealing with the IRS, this is only extremely rarely worth the trouble. In any case, both of these categories could easily be handled by providing a local skeleton crew and having all the real work done centrally.

    *There have even been the odd claim that someone went to the Finanzamt in person and was given information concerning his case orally—and that the Finanzamt later refused to give the same information in writing and/or to re-iterate this information at a later date, with the attitude that “we have already explained this, so piss off”. While I have no personal experience with this, even the risk should be a great deterent.

    Historically, this might have been justifiable; for decades it definitely has not been; with the removal of paper forms it has become a travesty. At this juncture, the real reason is almost certainly that the interests of the IRS, including its local wannabe big-shots and whatnots, trump the interests of the tax payers.

  2. There are two main identifiers used for a tax payer, the “Steuernummer” and the “[steuerliche] Identifikationsnummer”. The latter is an unchanging nationwide identifier that would be perfect for keeping track of the tax payers. It is basically never used… It does not appear on correspondence from the IRS, most forms do not contain a field for it, Elster does not store it, … To my recollection, I have only ever used it for the tax declaration, where there suddenly is a request for this identifier—and I had to go through years of correspondence to find the single letter in which I had been notified about this number.*

    *The first time around: I made sure to store it in a file of my computer for subsequent need.

    No, the number that is used is the idiotic Steuernummer, which changes according to the whims of the IRS. For instance, every single time that I have moved from one city to another, I have been given a new Steuernummer, because these appear to be specific to the individual Finanzamt. When I became self-employed, there was another change, despite my not moving, for reasons that are unclear to me*.

    *Likely there are further criteria (directly or indirectly) coded into the Steuernummer, e.g. relating to a general tax classification.

    The effects of such changes include that I have to pay attention that Elster does not include the old number in a given form, that I cannot just copy-and-edit an old letter to the IRS while leaving identifiers unchanged, and that I might need to use both the new and old identifiers concurrently, when I have dealings with both the new and the old Finanzamt—not to mention the risk of error that is created by having an ever-increasing list of Steuernummer to keep track of. (In a guesstimate, I have had more than ten so far, with various moves and status changes.)

    Of course, if the tax payer accidentally uses the wrong Steuernummer the Finanzamt does not have the common sense to just look the correct one up, nor to internally translate everything to the Identifikationsnummer based on the current or historical Steuernummer. No, they send a letter that rudely demands that he uses only the new one—despite the involved problems being caused solely by IRS incompetence.

    (See also excursion at the end.)

  3. Despite this high degree of geographical dispersement, I still have (at least) two different government institutions handling my taxes (both requiring separate notifications about addresses and whatnot, both needing separate payment):

    My income (and other regular) taxes and VAT are handled by the Finanzamt of Wuppertal.

    My property taxes are handled by a department of the city of Wuppertal.

    This is the more annoying, seeing that the property taxes have a very disputable justification and that the world would be better off without them entirely. (Even compared to the general observation that fewer and lower taxes would be better.) The nonsensical nature of these taxes is demonstrated by the yearly amount of ~120 Euro for my apartment—payable in quarterly rates. For me, the additional effort is disproportionate*; for the city a significant portion of this money is lost again just to keep the the tax system it self going.

    *Not just due to the obvious extra effort, but also due to secondary complications. Last year, I had agreed with the previous owner, who had received the last annual assessment notice, that he would keep paying to the city for 2017, and I would reimburse him accordingly. (He felt that this would be easier, after having consulted the city.) Lo and behold, for the second quarterly payment, I received my own assessment and the instruction to pay directly to the city. Clearing this up and redirecting money accordingly took out a chunk of both his and my time. This year, the city kept using my Cologne address, despite my clear notification of a move, resulting in long communication delays and additional efforts to clarify why I suddenly received a very nasty letter threatening to, I kid you not, break down my apartment door in order to collect the roughly 30 Euro of the first quarterly payment. (A separate post on this and some other recent IRS problems is in planning.)

    More generally, this is both an example of problems that arise through there being too many individual entities with taxation rights, and of how the German system for money distribution between various organization levels (federation, states, cities, …) is poor. See excursion below.

Excursion on moving and an out-dated world view:
Many problems in Germany, especially where the government is concerned, could be explained by outdated ideas about how people will live their lives. For instance, if we assume that the IRS works under the premise that people only very, very rarely move from one city to another, this could help explain the reluctance to change this broken system. Ditto other unnecessary bureaucracy around moves. Similarly, if people are not “supposed” to change banks, this explains why there are so many screw-ups when someone does. Similarly, the historically very poor opening hours and the problems around meter readings/chimney sweeps/whatnot are explainable under the assumption that everyone is married and a non-working wife can handle this-and-that at any working hour. Etc. Of course, in the modern Germany, people do move and change banks, there are very many singles, and even married women often spend nine or more hours a day away from home due to work.

Excursion on Steuernummer:
The problems are likely rooted in history, because the Steuernummer existed long before the Identifikationsnummer. However, it is doubtful whether it ever truly made sense to have Steuernummer be Finanzamt-specific—and even if it did, the technical means to overcome those reasons have been present for decades. If the IRS has failed to take corresponding actions to e.g. make each Steuernummer awarded after, say, 1990 permanent and personal, this in it self is a sign of great incompetence or negligence. To boot, that forms and whatnot still use the Steuernummer is absurd—-whatever the historical situation might have been, we now do have a proper identifier! Use it!

Some remaining justification for Steuernummer could possibly be seen, were it needed to differ between the same tax payer in different roles, e.g. when working for several companies in the span of one year or when, like me, moving from (regular) employment to self-employment. However, the former is already solved, if at all needed, by a third (!) identifier, the eTIN, and the second is obviously not the case, because (in the year that I switched) I was supposed to use the new Steuernummer for both my business and my time in employment… (Note that I am still acting in a capacity as the same natural person, not as e.g. a corporation.)

As an aside, I have a fourth and a fifth identifier, both related to VAT handling. These might, however, have a greater degree of justification because this part of the system is shared with various juridical persons*, and the use of the Identifikationsnummer, Steuernummer, or similar, could be problematic.

*I am not aware of how the other numbers or their equivalents are handled for juridical persons; however, the tax system it self is sufficiently different that constraints that might apply legitimately to e.g. a corporation should not be imposed on regular in-employment tax payers.

Most likely, the true reason is that the IRS calculates the Steuernummer using semantic information and then uses that information, precluding changes. This is a beginner’s mistake: Identifiers of this type should always be kept abstract and use of any information present should be reserved for very rare exceptions. For instance, if a Steuernummer was constructed through a Finanzamt (without coordination with other parties) generating a sub-identifier unique within its own “name space” and then appending a globally unique identifier for it self, this would be legitimate. If someone later takes the Steuernummer, extracts the part that identifies the Finanzamt, and then concludes that the tax payer belongs to that Finanzamt, this is not legitimate, e.g. because such use necessitates that a tax payer who moves to the “jurisdiction” of another Finanzamt be given a new Steuernummer, e.g. because it makes it hard to move to another scheme later. Identifiers should be considered abstract numbers, once generated, and systems that use them should be built accordingly! (As I have seen again and again through my more than twenty years in IT.)

Excursion on subsidiarity and Germany as a federation:
Possible objections against centralization include an adherence to the principle of subsidiarity (in general); and that Germany is a federation (in particular), and that any reform must consider the rights of the individual states (“Länder”) relative Germany as a whole (“Bund”).

Looking at states vs. federation, the influence of the individual states on taxation is highly limited* in the first place, and I see no obvious reason why a system in which the federation collects and administrates all taxes and distributes various amounts back to the states would be impossible within the framework of the German system. (Apart from administration, this is already more-or-less what happens. Note that this might be very different in other federations.) If worst comes to worst, objections of this type could do no more than speak against a centralization beyond the state level—it would not preclude centralizing the great number of individual Finanzämter on a per state basis.

*Most and the most important taxes are all ultimately handled by the federation. The most important on the state level is likely the inheritance tax, and this is the type of tax that really should be on the federal level, in order to avoid arbitrary differences. In contrast, e.g. a traffic tax could have some legitimacy on the state (or lower level) to accommodate e.g. local geography. (Even here, however, I would see it as more advantageous to unify the tax system entirely. This especially as the justification of various taxes appears to grow smaller the more “local” they are. Consider e.g. the absurdity of tourists and other visitors having to pay an additional hotel tax in and to certain German cities: The tourists stimulate the local economy through the hotel stay, restaurant visits, shopping, museum excursions …—and are punished for coming by an arbitrary and unethical tax, in a manner that, practically speaking, amounts to racketeering.)

As for subsidiarity, the more important part is the right to local/decentralized/whatnot decision-making, which (in the specific case of taxes) is not given as things are now, and where no or little additional restrictions would apply. The lesser part is local/decentralized/whatnot execution. Here there would be a change, but not a harmful change, seeing that this is the type of task better handled centrally. If subsidiarity is used as an excuse to keep things de-centralized that should be centralized, subsidiarity becomes something negative.

Excursion on single and multiple taxing entities:
Having more than one entity that has the right of taxation over a given tax payer is unfortunate*, in general, with problems including confusion, more bureaucracy, and, at least potentially, more arbitrariness. A better system would focus on one such entity, and then have this entity distribute money as appropriate. We could, for instance, have the federation as a sole tax collector (both in terms of administration and determination), which then distributes money to the states according to some agreement, who then distribute money to counties, etc., in a trickle-down chain; or we could have a county (or an even smaller entity) collect taxes and let them “trickle up”. (I would prefer the former, however, to make the tax system as uniform as possible.)

*Some room for exceptions is present when the tax payer is legitimately touched by different jurisdictions, e.g. when someone lives on one side of a border and earns money on the other. Even here it is more a matter of a necessary evil than a good, however.

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Written by michaeleriksson

June 15, 2018 at 3:50 pm

3 Responses

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  1. […] In a recent text, I had an excursion on moving and an out-dated world view. The first time I entertained such thoughts was in my early years in Germany, specifically concerning opening hours*, and how my lack of a house-wife put me at a disadvantage. In a next step, the observation presented it self that the opening hours could be a hindrance for women who wanted to work (or move from part- to full-time). Used as I was to the Swedish feminists, I even wondered why there were no loud protests requiring that the restrictive “sexist”/“Patriarchal” regulations were loosened. […]

  2. […] no: Early May, I had not yet received my new Steuernummer (cf. [1] for terminology and problems around this misconceived identifier), despite having notified the […]

  3. […] I have written about technical and other issues forcing me to make repeated unnecessary visits to Elster to file my preliminary VAT ([1])—unnecessary, because I am on a sabbatical and have a preliminary blanket 0 for the rest of the year. The idiocies of Elster and the IRS have already extended the one visit that should have been necessary to four, as discussed in [1]. Come early August, I tried again, found that my Steuernummer and whatnot now were available for automatic use, and opted to minimize the additional effort by pre-declaring my VAT in two quarterly forms—stating 0 for the third and the fourth quarter. Alas, a few days ago, I received a note from the IRS claiming that my submission for the third* quarter had been rejected on the grounds that I was not eligible to file quarterly… In other words, these nitwits actually consider it reasonable that I should use even more of my spare time to file individual 0s for every individual month of the year… All in all, I would be better off just terminating my status as a freelancer. (Of course, if do, they will probably shove yet another Steuernummer down my throat—and another one after that, when I terminate my sabbatical and start working again… Cf. [2].) […]


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