(2021) How are multiple training courses assessed as a single measure?

Many children undergo multiple training programmes before reaching their career goal, e.g. bank apprenticeship followed by university studies, 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 subsequent studies were regarded as 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 regulations, 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 studies and is carried out within a short period of time (BFH ruling of 15.04.2015, V R 27/14; BMF letter of 08.02.2016, 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 is employed for more than 20 hours per week during this time, including waiting periods 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).

 

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 studies (Bachelor's degree). Since this is initial training, it does not affect the entitlement to child benefit if the child works more than 20 hours per week alongside their studies after completing their apprenticeship (BFH ruling of 03.07.2014, III R 52/13).

 

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 whenever further studies or training are undertaken "only alongside work", child benefit will be denied. 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 completed his training. A few months after the end of the "initial training", the son began a two-year part-time further training as 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 as a banking specialist is more 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 the end of the training, she began studies at a vocational college in marketing. The state-recognised part-time studies leading to the qualification "State-certified business economist" were undertaken while she 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 examination 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 examination, the daughter enrolled at the business school to obtain the qualification of State-certified business economist in the field of 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, taking 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 20.02.2019, III R 42/18; BFH rulings of 10.04.2019, 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 21.03.2019, III R 12/18, III R 16/18, III R 17/18, III R 40/18 and III R 50/18; BFH ruling of 10.04.2019, 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 21.03.2019, III R 18/18).

All cases have been referred back to the lower courts for further clarification of the facts. However, the BFH has already indicated that child benefit will be denied if the children each worked full-time alongside and the further training did not take precedence over the job.

 

Examination scheme:

The case law on child benefit for further studies or additional training has become extremely complicated. However, the following examination scheme can help in determining whether child benefit is to be granted:

1. Is it training or studies that build on the first training? If yes: continue with 2. If no, it is 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 temporal 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 did not register for the next possible training phase (e.g. a master course) until 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 qualification 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 the employment has taken precedence. If no: The child benefit entitlement could be retained, as the further training takes precedence. 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 qualification, this may indicate that the employment has taken precedence. According to the BFH, such a situation suggests that the further training measures only serve to further or upgrade qualifications in a profession already taken up and practised. If, on the other hand, the child takes up a job that would also have been open to them without the qualification obtained (e.g. temporary work in the catering or retail sector) 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 the 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 takes precedence.

Examples:

If, for example, a part-time job of regularly 22 hours per week is arranged to fit in with the respective training schedule, this is an indication of training taking precedence. The same applies if the child works a maximum of 20 hours per week during the semester, but increases their weekly hours during the semester break to achieve 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 the job. Finally, it may also be important to what extent the employment and training measures are coordinated with each other not only in terms of time but also in terms of content.

NOTE: For the sake of good order, it should be pointed out here that what has been said naturally applies equally to the question of granting the child allowance.