What tax rules apply to severance payments within the scope of insolvency proceedings?
November 11, 2023 | 40,00 EUR | answered by Lorenzo Zimmermann
Dear tax advisor,
I am currently facing a difficult situation and hope that you can help me. My name is Eiko Breitwieser and I am currently working in a company that has filed for insolvency. Due to the company's financial situation, I have been offered a severance package to terminate my employment.
However, I am concerned about the tax implications of this severance package in the context of the insolvency proceedings. Are there specific tax regulations to consider when it comes to severance packages in insolvency proceedings? How do these regulations differ from regular severance packages?
I want to ensure that I do not have any unexpected tax burdens and that I can utilize all opportunities for tax optimization. Could you please provide me with information on the tax specifics regarding severance packages in the context of insolvency proceedings? Are there any tax benefits that I may be able to take advantage of?
Thank you in advance for your help and support. I look forward to hearing from you and hope for a prompt clarification of my tax questions.
Sincerely,
Eiko Breitwieser
Dear Mr. Breitwieser,
Thank you for your inquiry regarding the tax implications of severance payments in the context of insolvency proceedings. It is understandable that you are concerned about possible tax burdens and want to ensure that you can take advantage of all tax benefits. I would be happy to provide you with some important information on this topic.
Severance payments made in the context of insolvency proceedings are generally subject to the same tax regulations as regular severance payments. This means that the severance payment is generally taxed as other income and is subject to the progressive income tax rate. However, there are some tax special features to consider in connection with severance payments in insolvency proceedings.
An important regulation concerns the tax relief for termination payments. Severance payments made in the context of a redundancy or a termination agreement may be tax-free under certain conditions according to § 3 No. 9 of the Income Tax Act. However, this regulation does not apply to severance payments made in the context of insolvency proceedings.
Another aspect to consider is the possibility of tax deferral. In certain cases, it may be possible to spread the tax on the severance payment over a period of time to reduce the tax burden. However, it is important to note that interest may accrue on the deferred tax.
It is advisable to seek advice from a tax advisor or a specialist lawyer in tax law in your specific case to make optimal use of all tax options and avoid unexpected tax burdens. Individual tax advice can help you clarify your tax questions and find the best possible tax arrangement for your severance payment in insolvency proceedings.
I hope this information is helpful to you and I am available for any further questions. Thank you for your trust and I wish you success in resolving your tax matters.
Best regards,
Lorenzo Zimmermann, Tax Advisor
