The BFH has ruled that a parent who only earns income from letting and leasing in Germany and is not employed or self-employed is not entitled to so-called „differential child benefit“ if the children live in another EU member state. This also applies if the family members receive family benefits in the country of residence that are lower than the German child benefit. According to Article 68 of EU Regulation No. 883/2004, in such a case the entitlement is determined exclusively by the residence rule, which excludes any entitlement to additional German child benefit.
Practical example:
The claimant initially lived with her husband, the father of the children, and her two children, born in 2014 and 2017, in Germany and received German child benefit for them. After moving, she lived with the children and her husband exclusively in a shared household in Hungary from September 2020 and for the entire subsequent period. Family benefits were paid for the children in Hungary, which were lower than the German child benefit. The claimant earned income from renting and leasing in Germany. This was her only income in Germany. She was not employed or self-employed. She submitted income tax returns in Germany for 2020 and 2021 for the rental income. The claimant's husband was neither employed nor self-employed in Germany during the period in dispute. The tax court did not determine whether he was employed or self-employed in Hungary at least part of the time during this period.
The BFH clarifies that income from letting and leasing pursuant to Section 21 EStG is not legally regarded as „employment“ or „self-employment“ within the meaning of social security. As a result, from the perspective of the EU coordination rules, the German entitlement to child benefit is only assessed on the basis of the children's residence criteria (here in Hungary). Family benefits from another country, even if they are below the level of German child benefit, are considered to have priority. The unlimited tax liability of the parent due to renting in Germany does not change this assessment.
Conclusion: The decision of the family benefits office and the Rhineland-Palatinate tax court were lawful. Certain types of income are to be treated differently from traditional employment income. European law is therefore decisive.