When joint bank accounts cause trouble with the tax office

Joint bank accounts bring trouble for families, as a tax audit may trigger the provisions on donations/parental benefits and the imposition of tax — and fines — if amounts are not declared.

Prompted by a case involving the transfer of funds from a joint account held by a parent and child to the child’s individual account, which was considered a donation, the Dispute Resolution Directorate clarifies the applicable framework for joint accounts.

According to tax legislation, the withdrawal of funds from a joint account by a co-beneficiary who has not contributed to the account and uses the money for their own benefit is considered a donation. The tax office may carry out an audit if it finds that a person who is a co-holder of a joint account withdraws or transfers an amount exceeding their contribution to that account.

In such cases, and provided that the amount is significant, the transaction may be treated as a donation/parental benefit, and the relevant declaration must be filed within the statutory deadlines so that it is either taxed or exempted.

For donations between parents, children, and grandparents, there is a tax-free threshold of €800,000, but only on the condition that it is declared to the tax authority (AADE).

In most cases, however, no declaration is filed, as withdrawals or transfers from joint to individual accounts are often seen as routine practice. Yet, if detected by the tax office, the actual circumstances will be investigated.

Specifically, the audit will check whether the person who received the funds had contributed the corresponding amount to the joint account. If not, it will be treated as a donation or parental benefit and, since the declaration will not have been filed, a donation tax and a fine (50% of the tax) will be imposed.

Clarifications from the Dispute Resolution Directorate (DRD)

Only small amounts, as well as funds transferred to children studying abroad within "reasonable" limits, escape AADE’s scrutiny.

According to the DRD, in cases of withdrawals or transfers from joint accounts, the following apply:

1. If the transfer is from a joint account of parent and child to the child’s individual account (when studying abroad), and it is proven that the funds cover the parent’s obligations for the child’s studies, then the remittance is considered to be borne by the parent and no donation arises.
2. If the transfer exceeds the necessary study expenses, the excess amount is considered borne by the child. If the child has no income or resources to have contributed to the joint account, this constitutes a deemed donation.
3. If the transfer is from a joint account of a parent and child (not studying) to another joint account of the same persons, and the child had no financial means to contribute to the joint account, the remittance is deemed to be borne by the parent.
4.  In such cases, the existence of a deemed donation cannot be ruled out, especially if the child later used the funds (e.g., withdrawing and depositing them elsewhere, investing, or even simply withdrawing cash).

The DRD also notes that these rules can similarly apply to any other case involving transfers of funds to or from joint or individual accounts.

It adds that when funds are transferred between the same co-beneficiaries of a joint account, each is deemed to bear the amount proportionally, unless proven otherwise, subject to the potential existence of a deemed donation as explained above.

It is emphasized that depositing money into a joint account does not automatically constitute a deemed donation between co-beneficiaries. A donation issue arises only if a co-beneficiary who had no financial ability to contribute to the joint account makes use of the funds — a factual matter subject to tax audit in each case.

Finally, it clarifies that if funds are transferred to and from a joint account between the same persons, and the exact same amount is returned to the original account without being used in the meantime by any co-beneficiary, no deemed donation can be established.