Edition September: Between Digitalization, EU Reforms and current Case Law of the Federal Fiscal Court

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• Tax »
• Law »
• National salary tax​ »
• In the Spotlight: New Flemish Fee for Single Permit Applications from 1 September 2026 »
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Tax

Differential child benefit: Rental income is not sufficient.

The German Federal Fiscal Court (BFH) issued a practically relevant clarification on the so-called differential child benefit in its ruling of January 15, 2026 (case no. III R 7/23). The ruling affects cases in which one parent earns only income from renting and leasing in Germany while the family resides in another EU member state.

Fundamentals of Differential Child Benefit

Differential child benefit is paid by the German Family Benefits Office when

• a parent in Germany is subject to unlimited tax liability due to employment or self-employment (triggered by domicile or habitual residence in Germany), and
• the family receives a lower child benefit for a child in another EU member state than in Germany.

In this case, the German family benefits office compensates for the difference between the foreign and the German benefit.

Facts

In September 2020, the plaintiff had moved from Germany to Hungary with her family and maintained neither a residence nor a habitual abode in Germany. Consequently, she was generally subject only to limited tax liability. Since she exclusively generated income from letting and leasing within the meaning of Section 21 EStG in Germany, she applied for assessment as a person subject to unlimited tax liability pursuant to Section 1 (3) EStG. In Hungary, the family received child benefit that was below the German level. At first glance, all requirements for a claim to differential child benefit seemed to be met.

The decision of the Federal Finance Court

The BFH opposed this: Income from letting and leasing is not considered income from employment or self-employment within the meaning of the European Coordination Regulation (EC) No. 883/2004. In such constellations, the German child benefit claim is therefore assessed exclusively according to the children’s place of residence. The family benefits paid in the state of residence are considered primary even if they are lower than the German child benefit. Even the unlimited tax liability obtained upon application according to Section 1 (3) EStG does not change this if it is based solely on rental income. For the claim to differential child benefit, it is not sufficient to merely generate income from letting and leasing in Germany and to apply for unlimited tax liability. Rather, the actual exercise of an employment subject to social security contributions or self-employed activity in Germany is required. In this respect, rental income is clearly to be distinguished from classic earned income and does not justify a claim to German differential child benefit.

Law

Reform of Regulations (EC) 883/2004 and 987/2009: Impact on the coordination of social security systems in EU social law

The European Union is facing a major modernization of the rules on social security coordination. Following years of negotiations, the EU Parliament agreement on the coordination of social security systems (Regulations (EC) No. 883/2004 and 987/2009) confirmed an previously reached with the Council on July 7, 2026. In the next step, the Council must still formally adopt the agreement before it can be published in the EU Official Journal. The reform is planned to enter into force as early as October 2026. A transitional phase is intended for the implementation of the new regulations, so that entry into force can be expected in October 2028 at the earliest.

The target of the reform is to adapt existing regulations to the increasing mobility of employees and self-employed persons as well as to modern forms of work, and to simplify international project work, business trips, remote work, and multi-state activities.

Adjustments for postings within the meaning of Art. 12 of Regulation (EC) 883/2004 and A1 certificates

A key focus of the reform is the redesign of the rules for postings. In the future, it must be ensured that A1 certificates are applied for before the start of an activity abroad. While retrospective application will still be possible, the retroactive application period must be “appropriate” (a definition for this remains to be seen). A notable new regulation is that for posted employees, a prior affiliation of at least three months to the social security system of the sending state is required. Previously, a two-month affiliation with the social security system of the sending state was sufficient. Furthermore, the requirements for consecutive postings (keyword: prohibition of replacement) are specified and the regulations to prevent abuse are further tightened. The replacement of employees shall generally remain permissible as long as the total duration of the activities carried out in the country of assignment does not exceed 24 months. For short-term activities of up to three consecutive days within a period of 30 days, facilitations shall apply in the future. In these cases, an A1 certificate is generally not required, although exceptions are provided for certain sectors, particularly the construction sector.

Facilitations for business trips

For the first time, the reform introduces a uniform Europe-wide definition for business or service trips. This includes in particular participation in meetings, training, seminars, or internal company events. For such activities that have no commercial reference, simplified evidence and reporting obligations shall apply. Obtaining an A1 certificate shall be dispensable even for a period longer than three days. However, employers will be obliged to be able to prove, at the request of the authorities, that the requirements for the respective exemption are met. The planned change is intended to reduce bureaucracy and particularly relieve human resources departments.

Restrictions on multi-state activities according to Art. 13 of Regulation (EC) 883/2004

Previously, A1 certificates in the case of multi-state activities were sometimes issued for up to five years depending on the facts. With regard to these “permanent” A1 certificates, it is planned that a change should occur to the effect that an initial A1 certificate on the basis of Art. 13 can be issued for a maximum of 24 months. Subsequent extensions remain possible if the respective requirements are met.

Digitalization to strengthen cooperation between authorities

Another focus of the reform is the digitalization of the respective social security systems. The European Commission is pursuing the goal of simplifying data exchange between national social security institutions and optimizing electronic procedures. In addition, new mechanisms are being created to improve the verification of A1 certificates and to combat cases of fraud or abuse more effectively.

Need for action for companies

Even if transitional periods are provided for individual new regulations, companies should already check whether their processes meet the future higher requirements. In particular, the systematic recording of working days abroad, the timely application for A1 certificates, and the documentation of business trips and multi-state activities are becoming increasingly important. At the same time, the reform illustrates that the social security assessment of cross-border activities is becoming increasingly complex. Companies should therefore review their existing guidelines for international employee assignments and ensure that labor, tax, reporting, and, if applicable, immigration law requirements are also taken into account. As various specialist articles on the reform emphasize, an early analysis of existing posting and travel guidelines as well as the adaptation of internal control and documentation processes can help to reduce compliance risks and avoid additional administrative effort.

Conclusion

The reform of Regulations (EC) No. 883/2004 and (EC) No. 987/2009 represents an important milestone for European social security coordination. While the intended regulations are designed to create more legal certainty and digital simplifications, they simultaneously increase the requirements for the documentation and management of cross-border assignments. Companies should closely monitor further developments and use the remaining time until entry into force to make their processes future-proof.

Digitalization of migration administration: MDWG intended to create the basis for faster and more efficient procedures 

With the Act on the Further Development of Digitalization in Migration Administration (Migrationsverwaltungsdigitalisierungsweiterentwicklungsgesetz – MDWG), another milestone for the digital transformation of the German administration has been reached. The law was announced in July 2026 and aims to make administrative procedures in the migration sector more efficient, faster, and more citizen-friendly. According to the Federal Government, existing media discontinuities are to be eliminated, authorities relieved of redundant work steps, and cooperation between the federal, state, and local governments improved.

The key innovations include:

• The reuse of biometric data already collected when extending or reissuing electronic residence permits, which can reduce personal appointments in many cases.
• Expanded data exchange via the Central Register of Foreigners (AZR), which will function even more strongly as a central data hub in the future.
• The digital provision of relevant documents in the visa process for all participating authorities. This is intended to speed up procedures and avoid multiple transmissions.
• Improved possibilities for identity clarification through the storage of additional identity-relevant documents.
• Optimized cooperation between immigration, social, and security authorities through the structured provision of relevant information.

Relief for authorities and those affected

A major goal of the law is to reduce unnecessary personal appointments and to automate administrative processes more strongly. Due to the longer availability of data already collected, certain procedures can be carried out more efficiently in the future. This is intended to noticeably reduce both the workload of the immigration authorities and the effort for applicants. In addition, information on benefit restrictions under the Asylum Seekers Benefits Act as well as certain notifications from criminal proceedings will be systematically made available in the AZR. This is intended to improve the cooperation of the participating authorities and create a more uniform basis for decision-making.

Significance for digital administration

The MDWG is part of the ongoing efforts by the federal and state governments to digitalize public administration more strongly. The modernization of migration administration is considered particularly important, as numerous authorities at the federal, state, and local levels work together here and rely on up-to-date, reliable information. The new regulations are intended to reduce existing barriers to digitalization and create the conditions for end-to-end digital administrative processes.

Conclusion

With the MDWG, the legislator is sending a clear signal for a modern and efficient migration administration. The improved possibilities for data exchange, the greater use of digital procedures, and the expansion of the Central Register of Foreigners are intended to help make administrative processes more efficient, transparent, and user-friendly. For authorities, IT service providers, and all actors in public administration, the law opens up new opportunities to further advance the digital transformation in the migration sector.

KIMVG: Draft bill on the use of AI in migration administration

On August 14, 2026, the Federal Cabinet approved the draft of a law on the use of Artificial Intelligence in migration administration (AI Migration Administration Act, KIMVG). The target of the law is to support the processing of visa, asylum, and residence procedures through the use of digital technologies and to improve the efficiency, quality, and uniformity of administrative procedures. The background is the case numbers in migration administration, which have been rising for years, as well as the increasing complexity of the procedures. In the view of the Federal Government, the existing personnel and organizational capacities of many authorities are reaching their limits. Digitalization is therefore intended to help speed up administrative processes and use existing resources more purposefully.

What does the AI Migration Administration Act provide for?

The draft bill creates the legal basis for the development and use of AI systems within migration administration. Authorities shall be allowed to process personal data in a legally secure manner in order to develop, train, validate, and test AI applications.

In addition, various automated procedures are planned, including:

• the analysis of procedural flows and decision patterns,
• the identification of contradictory or incomplete information in applications,
• the recognition of optimization potentials in administrative processes, and
• the automated comparison of publicly accessible information to verify relevant details.

The Federal Government explicitly emphasizes that AI systems should not make independent decisions. The legal assessment of a set of facts and the final decision remain the responsibility of the competent employees. AI is intended to serve merely as a supporting instrument.

Expected benefits for administration and applicants

Through the use of AI, the Federal Government hopes for a significant relief for the administration. In particular, processing times are to be shortened, procedures standardized, and the quality of decisions improved. At the same time, patterns and bottlenecks in processes could be recognized more quickly, allowing optimization measures to be implemented more purposefully. Benefits could also arise for applicants. Faster procedures, more consistent processing of applications, and better traceability of administrative processes could contribute to increasing transparency and service quality.

Critical voices from the professional world

Despite the expected efficiency gains, the project is met with criticism in professional circles. Experts urge particular caution when using AI in asylum procedures. In their view, this is a highly sensitive area of application in which decisions can have significant impacts on the lives of the people concerned. Critics point out that AI systems can adopt or reinforce existing biases in data sets. This creates the risk of discriminatory or erroneous assessments. The professional community therefore calls for consistent human control, transparent procedures, independent review mechanisms, and high requirements for data protection and traceability.

Between innovation and the rule of law

The discussion about the KIMVG illustrates the challenges associated with the use of Artificial Intelligence in the public sector. On the one hand, the technology offers the potential to strengthen the administration’s ability to act in the long term and to make procedures more efficient. On the other hand, principles of the rule of law, data protection requirements, and the individual examination of each individual case must be maintained. Particularly in the case of decisions with direct impacts on the residence status or protection claims of people, the decisive question will be how AI systems can be controlled, monitored, and made traceable.

Outlook

With the cabinet decision, the parliamentary legislative process now begins. The Bundestag and Bundesrat will deliberate on the draft in the coming months. Regardless of the further course, the project already shows today that Artificial Intelligence is increasingly being viewed as an instrument for modernizing state administrative processes. Crucial for success will be whether it is possible to bring technological innovation into harmony with transparency, data protection, and human responsibility.

National salary tax

Latest news on tax-free reimbursement of expenses for charging

If an employee is provided with an electric or hybrid electric vehicle as a company car (also) for private use, the employer may reimburse electricity costs paid in advance by the employee as tax-free reimbursement of expenses according to Section 3 No. 50 EStG.

This also applies if the employee charges the company car at home. To simplify the reimbursement of expenses for the charging current in these cases, the tax administration had established flat rates that the employer could reimburse tax-free without further evidence. These flat rates were abolished by BMF letter dated November 11, 2025 (BStBl I 2025, 1929). From January 1, 2026, the amount of electricity charged must be recorded. The employer can only reimburse the employee for the actual electricity costs or an electricity price flat rate tax-free. We reported on this in our special edition November 2025 (Global Mobility Pulse November 2025 | RÖDL).

The Bavarian State Office for Taxes has now commented on practical questions in connection with this change in a “guidance note” dated June 18, 2026 (Ref. S 2334.1.1-73/11 St36, FMNR202600987). A special feature of this letter is that it is not binding for the tax offices. The State Office leaves the decision in the specific individual case to the competent tax office.

The change from January 1, 2026

From January 1, 2026, the amount of electricity charged must be recorded and the employer can reimburse the employee for the actual electricity costs or an electricity price flat rate tax-free.

• For the reimbursement of actual electricity costs, the employee must prove the electricity price paid by him from the contract with the electricity provider. A basic price to be paid can be taken into account proportionally. In the case of a dynamic electricity tariff, the average monthly electricity costs per kWh including a proportional basic price can be applied. The price to be paid to the electricity provider can also be applied if the domestic charging device is (also) fed by a private photovoltaic system.
• The electricity price flat rate is determined from the total electricity price for private households published semi-annually by the Federal Statistical Office (Statistics Code 61243-0001, “average prices including taxes, duties and levies”) and amounts to EUR 0.34 per kWh for the 2026 calendar year. The electricity price flat rate covers all of the employee’s electricity costs from the use of a domestic charging device.

Right of choice between the application of actual electricity costs and the electricity price flat rate

The right of choice between the actual electricity costs and the electricity price flat rate must be exercised uniformly for the calendar year (cf. para. 30 of the BMF letter dated November 11, 2025).

The State Office clarifies that the uniformity refers to the respective employee, not the entire company. The employer can therefore offer both accounting variants to the employees if he wishes to do so. The State Office takes the view that the employer must apply the accounting method desired by the employee in the wage tax deduction procedure, unless otherwise resulting from the employment contract or another labor or service law basis. If the employer wants to apply only one of the two accounting methods in the company, he must specify this in the corresponding regulations (e.g., company car policy, transfer agreement).

The employee is not bound by the accounting method chosen in the wage tax deduction procedure within the framework of his income tax assessment, but can choose another method for the entire calendar year (uniformly for all motor vehicles provided to him) and deduct the amounts more favorable to him (minus the amounts reimbursed by the employer) as self-borne vehicle costs from the non-cash benefit. In this case, he must submit the usage agreement to the tax office and demonstrate on a vehicle-specific basis how the employer determined and taxed the usage value (e.g., salary slip showing the determination and taxation of the usage value; certificate from the employer) and state in writing the amount of the electricity costs borne by himself and the tax-free reimbursement of expenses reimbursed by the employer.

Proof of the amount of electricity

The amount of electricity charged is to be proven by means of a separate stationary or mobile (for example, wallbox or vehicle-internal) electricity meter. The State Office clarifies that no MID or calibration law-compliant meter unit is required to record the amount of electricity charged. The fact that the meter does not have to be calibration law-compliant is also confirmed in the BMF letter dated July 21, 2026 (see point 6).

Otherwise, no special requirements are placed on the proof of the amount of electricity charged. However, the proof must result directly and unalterably from the charging data. This can be done, for example, by means of a screenshot, photo, app-based, from the logs of the wallboxes, or the vehicle-internal evaluations. Self-created documents by the employee (e.g., statement of the amount of electricity) or alterable Excel lists will not be recognized.

If several vehicles are charged at one charging point, the individual charging process must be assignable to the corresponding vehicle (e.g., by means of app-based solutions). However, no separate wallbox is required per vehicle.

Charging losses

Losses that occur when charging the vehicle are economically attributable to the charging process and can therefore also be reimbursed tax-free as reimbursement of expenses.

Temporal application

The electricity price flat rates mentioned under point 1 apply to charging processes until December 31, 2025. For the tax-free reimbursement, the time of charging the company car is decisive, not the time of payment. The flat rates therefore remain tax-free even after December 31, 2025, if they are paid for a period before January 1, 2026. The State Office clarifies that the question of when the tax-free reimbursement of expenses is actually settled only affects labor or civil law, but not tax law. For charging processes from January 1, 2026, however, proof of the amount of electricity is required. This applies regardless of when the reimbursement takes place. For tax reasons, no monthly billing is required either. The decisive factor is that the evidence is available at the time of the reimbursement of expenses and that this is recorded in the wage account at the time of payment.

Charging current for taxpayers with profit income

For taxpayers with profit income, the flat rates established for wage tax deduction were also recognized for the deduction of business expenses according to para. 19 and 20 of the BMF letter dated November 5, 2021 (BStBl 2021 I, 2205).

However, with the BMF letter dated July 21, 2026, they were abolished for fiscal years beginning after December 31, 2025. Taxpayers with profit income must now also prove their amount of electricity charged. Unlike the rules applicable to wages, records for a continuous period of three months are sufficient for proof of the business share of the total amount of electricity, provided that this share cannot be easily read out (e.g., from a vehicle-internal specific recording and assignment of the amount of electricity).

The BMF letter dated July 21, 2026, contains a transitional regulation until July 31, 2026. Until this date, previous charging current flat rates may still be taken into account for the deduction of business expenses.

No claim for reimbursement by the employee according to Section 50d (1) sentence 2 EStG old version analogously

If the employer has withheld wage tax even though the employee is neither subject to limited nor unlimited income tax liability, the employee could previously apply for the reimbursement of the wrongly withheld wage tax in analogous application of Section 50c (3) sentence 1 EStG at the permanent establishment tax office. The same applies if, in the case of an employee subject to limited income tax liability, the right to tax the wages belongs to another country according to a double taxation agreement (DTA) and the wrongly withheld wage tax cannot be reimbursed via an income tax assessment for persons subject to limited tax liability. This is regulated in the BMF letter dated June 27, 2022, BStBl. 2022 I, 956.

For wage payments until December 31, 2020, a reimbursement in analogous application of Section 50d (1) sentence 2 EStG was possible in the above-mentioned cases (cf. H 41c.1 “Reimbursement application” LStH 2020). The regulations of Section 50d (1) EStG were moved to Section 50c EStG from 2021, so that Section 50c EStG now applies.

The background for the reimbursement of wage tax in analogous application of Section 50d EStG was the BFH judgment of October 21, 2009 (BStBl. 2012 II 493), in which the 1st Senate of the BFH, then responsible for international employee taxation, took the view that a withholding tax exceeding the limited tax liability was levied without a substantive legal reason and should therefore be reimbursed in corresponding application of Section 50d (1) sentence 2 EStG. The 1st Senate of the BFH did not consider a change to the wage tax registrations submitted by the employer to be necessary in these cases.

The 6th Senate of the BFH, responsible for international employee taxation since January 1, 2024, has now contradicted this. In its judgment of April 9, 2026, Ref. VI R 12/24, it decided that such an application in analogous application of Section 50d (1) sentence 2 EStG cannot be made for income from non-self-employed work. This is because the legislator only created a provision for the reimbursement of capital gains tax in Section 50d (1) sentence 2 EStG old version. It did not include a legal basis for the reimbursement of wage tax in the law. However, it would have had to do so if it had wanted wage tax to be reimbursed without prior challenge of the wage tax registrations. There is also no regulatory gap that would have to be closed by an analogous application of Section 50d (1) sentence 2 EStG old version, because the employee has a possibility to obtain a reimbursement of the wage tax withheld and paid by the employer wrongly in terms of substantive law: He can challenge the wage tax registration submitted by the employer (which forms the legal basis for the payment of the wage tax) in his own right.

In the case of the judgment, the 6th Senate of the BFH refused to reinterpret the employee’s application for reimbursement of wage tax into an application for amendment of the wage tax registrations, as the employee was tax-represented and an application for reimbursement of wage tax had been explicitly made. In addition, the reservation of review for the relevant wage tax registrations had already been canceled due to a wage tax audit carried out in the meantime.

Employees subject to limited tax liability can therefore in the future only achieve the reimbursement of wrongly withheld wage tax by challenging the wage tax registrations submitted by the employer.

For reimbursement applications made by the end of the day of publication of the decision of April 9, 2026 (which was July 9, 2026), the 6th Senate continues to allow the application of the previous principles on the analogous application of Section 50d (1) sentence 2 EStG old version for reasons of protection of legitimate expectations. This is because the present decision means a change in long-standing case law that was applied by the tax administration for many years.

In the Spotlight: New Flemish Fee for Single Permit Applications from 1 September 2026

From September 1, 2026, employers must pay a fee of EUR 180 for each Single Permit application in Flanders. The fee applies to both initial applications and renewal applications and will be collected at the time of application via the One-Stop Counter (“Uniek Loket” / “Guichet Unique”). Applications will not be processed without payment of the fee.

Why is this fee being introduced?

Previously, employers who submitted a Single Permit application (“gecombineerde vergunning” / “permis unique”) in the Flemish Region did not have to pay a regional fee for the processing of the labor law permit part. This changes as of September 1, 2026. The fee of EUR 180 is intended to cover the administrative costs incurred by the Flemish authority for economic migration when examining the labor law part of the Single Permit application. This fee is to be distinguished from the already existing federal fee (currently EUR 152) and is in addition to it. The federal fee serves to process the residence law part of the application by the federal immigration authority.

The main features of this fee:

• Scope: The fee applies to every Single Permit application, including initial applications and renewals. This differs from the federal fee, which is only charged for initial applications and not for renewals. Applications for work permits with a maximum validity of 90 days (“arbeidskaarten” / “permis de travail”) are not affected.
• Amount of the fee: The fee is EUR 180 per application. The amount is subject to annual indexing. If an application is rejected, there is no refund of the fee.
• Due date: An application will not be processed unless the fee has been paid.
• Additional fee: The Flemish fee of EUR 180 is to be paid in addition to the existing federal fee of EUR 152. Employers must therefore expect total costs of EUR 332 per application for a combined permit from September 1, 2026.

Submit upcoming applications and renewals before September 1, 2026

Employers who wish to submit Single Permit applications in the near future are advised to do so before September 1, 2026, to avoid the additional costs.

What is the situation in the Brussels-Capital Region and in the Walloon Region?

So far, there is no comparable regional fee for Single Permit applications submitted in the Brussels-Capital Region or in the Walloon Region. In these regions, only the federal fee applies (currently EUR 152).

Events

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