(2023)
How are multiple training courses assessed as a single measure?
Many children undergo several training programmes before reaching their career goal, e.g. bank apprenticeship followed by a degree, craft apprenticeship followed by technical college or vocational school, craft apprenticeship and vocational school and university of applied sciences.
According to previous legal regulations, the first professional qualification (apprenticeship) was considered initial training and the subsequent degree was considered further training. Expenses for initial training are deductible as special expenses (if outside a training service relationship) and for further training as unlimited business expenses.
There is only an entitlement to child benefit for further training if no employment or employment of less than 20 hours per week is undertaken.
According to the new legal situation, further training after the completion of the first training can still be considered part of the initial training if it is evident from objective evidence that the child has not yet reached their desired career goal (so-called multi-stage training). The decisive factor is whether the further training is closely related to the non-academic training or initial degree and is carried out in close chronological proximity (BFH ruling of 15.4.2015, V R 27/14; BMF letter of 8.2.2016, BStBl. 2016 I p. 226).
Significance of multi-stage vocational training:
- For parents, it is advantageous if vocational training is assessed as initial training for as long as possible. This is because there is an entitlement to child benefit or tax allowances, regardless of whether the child works more than 20 hours per week during this time - including waiting time for a training place and transition periods (§ 32 para. 4 sentence 2 EStG).
- For the child, it is advantageous that after the first professional qualification, they can deduct their costs for further training as business expenses without limit from 2015 (§ 9 para. 6 EStG).
Even though the term "initial training" is significantly expanded for the purposes of child benefit and child allowance with "multi-stage training", the term "proper" initial training for the purposes of deducting business expenses remains unaffected. From 2015, initial training is considered to be training in an organised training programme lasting at least 12 months full-time and ending with an examination (§ 9 para. 6 sentence 2 EStG). During the subsequent further training, costs can be deducted in full as business expenses, and a loss can be carried forward to the following year.
The tax authorities have explicitly clarified that the child benefit legal precedent (from 2015) is to be applied and it is irrelevant whether the vocational training or degree meets the special requirements for initial training according to § 9 para. 6 EStG. Consequently, the alignment of "initial training" for child benefit and business expense deduction is broken (BMF letter of 8.2.2016, BStBl. 2016 I p. 226, para. 12d).
In 2014, the Federal Fiscal Court ruled that dual study vocational training constitutes a single initial training, even if the practical training (apprenticeship) ends earlier than the degree (Bachelor). Since this is initial training, it does not affect the child benefit entitlement if the child works more than 20 hours per week alongside their studies after completing their apprenticeship (BFH ruling of 3.7.2014, III R 52/13).
Hans completed an apprenticeship as an electrician in February 2012 and immediately applied for a place at the technical vocational school. Attending this school is a prerequisite for studying at a university of applied sciences. He aims to qualify as an electrical technician or engineer. He started attending the vocational school in August 2012.
In the interim period from March to July 2012, he worked full-time in his trained profession for the usual salary. This interim period is considered waiting time for a training place and is also eligible for child benefit. In October 2013, he began his studies at the university of applied sciences. The family benefits office refused child benefit for the waiting period due to employment.
The BFH sees this as "multi-stage vocational training" (apprenticeship - vocational school - university of applied sciences), which constitutes a single initial training. The first professional qualification from the apprenticeship does not yet constitute initial training. The further training measures are part of a single training programme. They are closely related to the first professional qualification and were also carried out within a close chronological context.
As if the matter were not already complicated enough:
The BFH has recently issued a series of rulings on further cases and clarified its position - but unfortunately also complicated it. Ultimately, it can be noted that child benefit is always denied if further studies or training are undertaken "only alongside work". Part-time jobs, however, are harmless (BFH rulings of 11.12.2018, III R 22/18, III R 2/18, III R 32/17, III R 47/17). The cases in which the family benefits office denied child benefit for further training included:
Case 1: The son first completed training as a bank clerk. He then worked full-time at the bank where he had trained. A few months after the end of the "initial training", the son began a two-year part-time further training course to become a banking specialist. The BFH has not yet made a final decision but has indicated that it will not grant child benefit because the training to become a banking specialist is likely to be considered part-time further training. The case was referred back to the lower court.
Case 2: The daughter first completed an apprenticeship as a bank clerk. Shortly after finishing her training, she began a part-time study programme at a vocational college in marketing. The state-recognised course leading to the qualification "State-certified business economist" was part-time. At the same time, the daughter was employed first at the bank and later at a car dealership. Her weekly working hours were 40 hours in each case. Here too, the BFH has not made a final decision. The lower court must examine whether the training relationship was subordinate to the employment relationship or vice versa. It is likely that child benefit will be lost.
Case 3: The son passed the exam in the training occupation of electrician in the field of energy and building technology and was taken on by his training company in the same month with a weekly working time of 38 hours. A few months later, the son attended the two-year evening course to become an industrial master electrician IHK. The case was referred back to the tax court, which must now examine whether the training or the job was the priority. There is much to suggest that the job was the priority and therefore there is no entitlement to child benefit.
Case 4: The daughter completed her training as a tax clerk. She was then taken on by her previous training company in full-time employment. Immediately after the exam, the daughter enrolled at the business school to obtain the qualification of State-certified business economist in business administration (focus on taxes). The part-time training lasted 3 1/2 years. In this case too, the tax court must decide again after the BFH referred the case back and must take into account its new principles. As in the three previous cases, it is not very likely that the parents will win the legal dispute.
In three further rulings, the cases concerned child benefit for daughters who each completed a part-time course to become an administrative specialist after training as an administrative clerk (BFH ruling of 20.2.2019, III R 42/18; BFH rulings of 10.4.2019, III R 51/18 and III R 33/18). In as many as six cases, the issue was child benefit for children who each took up part-time studies to become a banking specialist or a finance or economics degree after training as a bank clerk (BFH rulings of 21.3.2019, III R 12/18, III R 16/18, III R 17/18, III R 40/18 and III R 50/18; BFH ruling of 10.4.2019, III R 19/18). The tenth ruling concerned child benefit for a son who, after training as an industrial mechanic and master training, completed the advancement to "Certified Technical Business Administrator" (BFH ruling of 21.3.2019, III R 18/18).
All cases have been referred back to the lower courts for further fact-finding. However, the BFH has already indicated that child benefit will be denied if the children worked full-time alongside and the further training was not the priority over the job.
The Federal Fiscal Court has recently ruled that child benefit is no longer applicable if the child works more than 20 hours in the tax administration after completing training as a graduate tax officer and studies law in their free time (BFH ruling of 7.4.2022, III R 22/21).
Checklist:
The case law on child benefit for further studies or additional training has become extremely complicated. However, the following checklist can help determine whether child benefit is to be granted:
1. Is it training or a degree that builds on the first training? If yes: continue with 2. If no, it is effectively a different "field": Child benefit is only granted if no employment or employment of a maximum of 20 hours per week is undertaken alongside.
2. Is there a chronological connection between the two training phases? If yes: continue with 3. If no: Child benefit is only granted if no employment or employment of a maximum of 20 hours per week is undertaken alongside.
Note: If the son or daughter only registered for the next possible training phase (e.g. a master course) several months after passing the first training (e.g. journeyman's examination), this does not speak against linking the training phases (BFH 11.12.2018, III R 32/17).
3. Is the child already using the qualification they obtained after the first degree for a job they are now actually doing? If yes: There is much to suggest that the further training is no longer part of a "comprehensive training". Consequence: Child benefit for the further training will probably not be granted, as employment has taken priority. If no: The child benefit entitlement could be retained, as the further training is the priority. However, an overall assessment with point 4 must be made in both cases.
Examples: If, for example, a journeyman or clerk is taken on by their training company in the profession they have learned, or if a Bachelor takes up a position opened up by this degree, this may indicate that employment has taken priority. According to the BFH, such a situation suggests that the further training measures only serve professional development or higher qualification in an already started and practised profession.
If, on the other hand, the child takes up a job that would have been open to them even without the degree obtained (e.g. temporary work in gastronomy or retail) or if the employment is typically not a permanent job (e.g. a Bachelor working 19 hours as a research assistant during a subsequent Master's degree and giving 3 tutoring hours per week), this may indicate that vocational training is the priority.
4. Is the employment superior to the further training and is the training therefore carried out alongside work according to its external appearance? If yes: In the overall assessment with point 3, child benefit will probably be lost. If no: Child benefit is likely to be retained in the overall assessment with point 3, as the training is the priority. Employment of more than 20 hours per week speaks against the granting of child benefit. However: If the 20-hour limit is only slightly exceeded, this may be harmless and the vocational training may still be the priority. For vocational training to be the priority, it also depends on the time ratio between employment and training measures.
Examples: If, for example, a part-time job of regularly 22 hours per week is arranged to fit the respective training schedule, this is an indication of training being the priority. The same applies if the child works a maximum of 20 hours per week during the semester but exceeds the weekly hours during the semester break to reach an average working time of more than 20 hours per week.
If, on the other hand, the child works almost full-time and the training measures are only carried out in the evening and at weekends, this indicates that the further training measures are only carried out alongside employment. Finally, it may also be relevant whether and to what extent the employment and training measures are coordinated with each other beyond the time aspect.
Note: For the sake of good order, it should be noted here that the above also applies equally to the question of granting the child allowance.
