The averaging scheme in the income tax is intended as compensation for the progression disadvantage that can arise with strongly changing incomes. If the income varies greatly per year, the progression in the rate may result in more tax being paid on balance than if the incomes were evenly distributed over the years.
The operation of the scheme
The scheme works as follows. The incomes of box 1 of three consecutive calendar years are added together and divided by three. The tax is then calculated on this average income per year. The difference between the tax levied and the recalculated tax is refunded to the extent that it exceeds € 545. The national insurance contributions are included in the calculation, but are not returned. An averaging refund only relates to the tax. Because the premiums are included in the calculation, it is possible that despite a lower recalculated income tax there is no averaging refund due to the influence of the recalculated national insurance contributions.
The legislator was not obliged to introduce a scheme such as the averaging scheme. This also means that the use of a threshold for its application is permissible in itself. It is also not unreasonable to take into account the recalculated national insurance contributions in determining this threshold, given the interdependence of premium and taxation. According to the Supreme Court, the way in which the recalculated national insurance contributions are taken into account by averaging is a test of fundamental property rights and the principle of equality.
