Capital gains mean church losses in new German tax twist

By Tom Heneghan
Reuters
August 29, 2014

http://www.reuters.com/article/2014/08/29/us-religion-germany-tax-idUSKBN0GT1R020140829

(Reuters) - A change in Germany's capital gains tax has prompted an exodus from its Catholic and Protestant churches this year as thousands of registered members quit their parishes rather than pay the money.

Dioceses in both churches have reported in recent weeks that the number of members deserting them has jumped compared to last year, often by 50 percent or more, as banks prepare to withdraw church tax at source for capital gains from January 1.

German tax authorities collect an 8 or 9 percent premium on churchgoers' annual tax bills and channel it to the faiths to pay clergy salaries, charity services and other expenses. Members must officially leave the church to avoid paying this.

Under a simplified procedure starting next year, banks will withhold that premium from church members earning more than 801 euros ($1,055) in capital gains annually and pass it on to tax authorities for distribution to the churches.

Letters from banks announcing the new procedure this summer and asking clients for their religious affiliation -- so they can earmark funds to the right churches -- have worried many members. Churches have scrambled to explain the changes.

"Nobody has to get angry and leave the church," the Lutheran diocese of Braunschweig pleads on its website.

"I'm surprised because this isn't a tax rise but just a new procedure," Rev. Karl Juesten, the Catholic liaison official with parliament in Berlin, told the magazine Christ & Welt this week. "We should have become active earlier."

Discussing the large sums involved is difficult for the churches, maybe more so now for Catholics because Pope Francis says he wants "a poor church for the poor" and makes a point of living in a simple apartment and riding in ordinary cars.

EMPTYING PEWS

National statistics are not yet available, but individual cases reported in recent weeks illustrate the problem.

For example, both the Lutheran diocese in Berlin and Stuttgart's Catholic diocese reported a 50 percent jump in departures in the first half of 2014. That means about as many quit in only six months as had left in a full year before.

Some clergy have accused financial advisers of telling clients to quit their churches if they don't want to pay up, a step that would have them barred from receiving the sacraments, being married in church or having a religious burial.

The banks replied with prompt and sharp denials.

"The churches are trying to get off easy. They should ask themselves why such a personal decision as belonging to a church is reduced to the issue of capital gains tax," said Thomas Lange of the local banking association in Duesseldorf.

The church tax system assures large annual sums for the churches but the steady stream of departing members and declining religious practice are slowly eroding its base.

These departures already hit the Catholic Church hard last year, rising by 50 percent to 178,805 because many quit in protest after a prelate dubbed the "bishop of bling" spent 31 million euros on a luxurious new residence and office.

"These latest figures are painful and all in the Church must take them seriously," Cardinal Reinhard Marx, head of the German bishops conference and a close adviser of Pope Francis, said last month when the statistics for 2013 were published.

Catholics and Protestants each make up about one-third of Germany's 80-million population. Being slightly more numerous, the Catholics got 5.5 billion euros compared to 4.8 billion euros for the Protestants in 2013.

Churchgoers are supposed to pay church tax on all their income, but many have apparently only declared their salaries. Since church tax is voluntary, the state tax authorities do not punish anyone who fails to declare additional income.

Germany introduced a flat 25 percent tax on capital gains withheld at source in 2009 after some high-profile tax evasion cases. Church tax was included in it for efficiency, to be withheld from 2015 after the necessary preparations were made.

Pensioners seem to be over-represented among those leaving, some dioceses say, suggesting they want to protect retirement nest eggs they had not previously declared to the churches.