(2023)
Reimbursement of training costs are deductible as income-related expenses
The Bundeswehr enables temporary soldiers to study at university at the Federal Government's expense during their service, usually human medicine. The soldiers receive a salary but must commit to serving as medical officers in the Bundeswehr for at least 10 years.
In many cases, however, soldiers leave the Bundeswehr after a short time to pursue a civilian career. The Federal Government then demands repayment of the training allowance received during their studies, which amounts to approximately 1,800 Euro per month, as well as subsequent specialist training costs.
To settle the invariably six-figure repayment sums, the Federal Government grants deferrals and instalment payments but charges interest of 4 percent on the deferred amounts. Recently, the Federal Administrative Court ruled in a number of cases that temporary soldiers who studied at university at the Federal Government's expense and left the Bundeswehr before the end of their commitment period must reimburse their training costs to the Federal Government (BVerwG rulings of 12.4.2017, 2 C 16.16; 2 C 5.16; 2 C 8.16, etc.).
- According to the BVerwG, the Federal Government is generally entitled to reclaim the training allowance granted during the studies and the subsequent specialist training costs. The legally stipulated repayment obligation does not violate the former soldier's property rights but represents an appropriate balance for the Federal Government's legitimate but disappointed expectations that the soldier would make the specialist knowledge and skills acquired at the Federal Government's expense available to it until the end of the commitment period.
- However, two corrections must be made to the Bundeswehr's calculation practice:
- Periods during which licensed medical officers perform full service as doctors in a Bundeswehr hospital must lead to a reduction in the repayment obligation (so-called service quota). This also applies if they receive specialist training during this time.
- The imposition of interest on deferred amounts is unlawful. There is no legal basis for this.
Recently, it was reported in the press that a former medical officer must repay 57,000 Euro in study costs to the Bundeswehr (Spiegel online of 14.1.2020). The individual had committed to 17 years of service with the Bundeswehr, was able to study medicine at the Bundeswehr's expense with a substantial training allowance, became an officer, and was even allowed to undergo clinical training as a specialist in anaesthesiology after his studies. He then served as an army doctor in crisis areas for several years, including Afghanistan. He later refused military service, was discharged early from the Bundeswehr, and is now required to repay part of his study costs.
Recently, the Düsseldorf Administrative Court ruled that the Bundeswehr's repayment claim is justified and that the former medical officer must repay 57,000 Euro to the Bundeswehr. The judges only ruled in favour of the claimant on one point: the Bundeswehr must grant him a deferral or instalment payment of the sum (VerwG ruling of 14.1.2020, 10 K 15016/16).
The repaid training costs are deductible as income-related expenses because they are objectively related to the profession. The expenses are economically caused by both the previous and the new employment relationship. On the one hand, they are inextricably linked to the previous employment, as the payment would not be conceivable without the agreement with the former employer.
On the other hand, the expenses also find their economic cause in the new employment relationship, as the repayment obligation would not have arisen without the new contract (BFH ruling of 7.12.2005, I R 34/05).
Similar to an agreed repayment of training costs in the event of a breach of contract is the agreement of a contractual penalty. The contractual penalty may become due if the employment is terminated in breach of contract before the end of a commitment period. Payments to fulfil a contractual penalty are fully deductible as income-related expenses or business expenses without any ifs or buts. Where the deduction is made is actually irrelevant.
On the one hand, the contractual penalty may be related to the subsequent self-employed work because it enabled it in the first place. On the other hand, it may also be primarily caused by the fact that the former non-self-employed work was not continued in accordance with the contract. In this case, the payment would be considered as subsequent income-related expenses (BFH ruling of 22.6.2006, BStBl. 2007 II p. 4).
