Tax Refund

The minimum wage in the United States is $7.25 per hour. It is €6.66 per hour in the United Kingdom and €8.40 per hour for some trades in Germany.

In 2004, Juergen Graefe, a German lawyer, did about an hour of work and earned a bit more than that. No, make that a lot more than €8.40 — his fee came out to €440,234 (about $570,000 at the time).

In 2001, a German pensioner went into the tax collector’s office to fill out his tax return. He put down an annual income of €11,000 — which, it turns out, was an error. He filed a correction, restating his income to be €17,000. Unfortunately, the tax official working on his paperwork failed to enter the correction properly. Instead, the pensioner’s income was listed at an absurd €1,100,017,000 — the GDP of a tiny country.

Given those “earnings,” the pensioner’s tax bill came in at €287 million and change.

Clearing up the error was not hard. The pensioner’s lawyer, Dr. Graefe, simply wrote a letter to the German tax authorities explaining the error. His client’s tax liability was corrected and he went on with his life. Dr. Graefe, thereafter, looked to collect his fee.

In the United States, typically, the client pays the fee for services provided, and in a matter like this, the fee would (likely) be an hourly one; the American equivalent of Dr. Graefe would probably earn $100 or so. Not bad. But in Germany, the law holds that when an attorney wins such a reduction, the lawyer’s fee — paid for by the tax man — is a percentage of said reduction. In this case, Graefe’s cut should have been about €450,000, but of course, the tax department disputed this amount as excessive.

The court agreed with Graefe, who collected his world-record fee.

Bonus fact: Before 1999, it was legal in Germany to bribe foreign public officials — and companies were able to deduct any such bribes (as a “business expense”) from their tax returns.

From the Archives: Representation Without Taxation: An odd little loophole in the UK’s political system leads to that strange result.

Related reading: “Great Government Goofs: Over 350 Loopy Laws, Hilarious Screw-Ups and Acts-Idents of Congress,” by Leland Gregory.  $12.00, 4.5 stars on 7 reviews. Not available on Kindle.

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