On 9 December 2008, the German Federal Constitutional Court announced its long-awaited decision on the cutback of the commuter tax allowance.

Before 2007, commuters were allowed to deduct a lump sum of EUR 0.30 for every kilometer driven from their home to their place of work. Since 1 January 2007, however, no such deduction had been allowed except partially in hardship cases which were generally defined as
commutes exceeding 20 km. The income of the federal states rose by EUR 2.5 billion (approx. USD 3.4 billion) per year as a result of the cut back.

The Federal Constitutional Court has now held that regulation to be unconstitutional and, therefore, the former regulation (which had been applicable until 31 December 2006) will again enter into force starting on 1 January 2009.

The governing coalition announced that the repayment of overpaid taxes which resulted from the cut back in the period from 2007 to 2008 will start in the first quarter of 2009. Due to the current economic situation, no measures will be taken to refinance the tax deficit of EUR 7.5 billion(approx. USD 10 billion)resulting from the paybacks.

While the governing coalition has announced its intention to issue a new regulation on the cut back of the commuter tax allowance for 2010, it has not yet indicated how the measure will be drafted in order to survive constitutional review.