Impact of foreign and Domestic Inheritance Tax on Capital Assets – Germany
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Under certain circumstances, inheritance tax charged in another country cannot be deducted or considered as a liability against the capital assets of a German testator.
If a foreign country charges inheritance tax on the acquisition of capital assets which the German testator has invested in that country, this cannot be deducted from German inheritance tax or considered as a liability of the estate unless a double taxation agreement has been signed between the foreign country and Germany.
This was decided by the Federal Fiscal Court (BHF) on June 29, 2013 (File number II R10/12) in following up on a ruling by the Court of Justice of the European Union (CJEU) of February 12, 2009 (File number C 67/08). However, the Federal Fiscal Court decided that consideration may be given when double taxation would lead to an excessive and punitive tax burden.
In the case decided by the BFH, the estate of the testatrix consisted mainly of capital assets situated in Germany and Spain. The plaintiff and sole heiress and the testatrix were both subject to German taxation. Spain as well as Germany charged inheritance tax on the capital assets. Germany did not allow a deduction of the inheritance tax paid in Spain.
The BFH also asked the CJEU whether the plaintiff’s double taxation, which came about because there was no possibility of a deduction, would constitute a restriction of free capital movement. However, the CJEU did not consider this as restricting the freedom of capital movement. It argued that the two affected countries had legitimately practiced their authority to tax inheritance, and that both countries were entitled to a certain autonomy. As long as common law was observed, this autonomy does not force a country’s tax system to adapt to the various tax systems of other member states, thus avoiding the possibility of double taxation.
Tax law is a complex subject, especially in view of possible double taxation and the various double taxation agreements. A lawyer experienced in tax law can help to answer legal questions.
ABOUT THE AUTHOR: GRP Rainer LLP
GRP Rainer LLP is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices in Cologne, Berlin, Bonn, Dusseldorf, Essen, Frankfurt, Hamburg, Hanover, Munich, Stuttgart, Bremen, Nuremberg and London UK.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
This was decided by the Federal Fiscal Court (BHF) on June 29, 2013 (File number II R10/12) in following up on a ruling by the Court of Justice of the European Union (CJEU) of February 12, 2009 (File number C 67/08). However, the Federal Fiscal Court decided that consideration may be given when double taxation would lead to an excessive and punitive tax burden.
In the case decided by the BFH, the estate of the testatrix consisted mainly of capital assets situated in Germany and Spain. The plaintiff and sole heiress and the testatrix were both subject to German taxation. Spain as well as Germany charged inheritance tax on the capital assets. Germany did not allow a deduction of the inheritance tax paid in Spain.
The BFH also asked the CJEU whether the plaintiff’s double taxation, which came about because there was no possibility of a deduction, would constitute a restriction of free capital movement. However, the CJEU did not consider this as restricting the freedom of capital movement. It argued that the two affected countries had legitimately practiced their authority to tax inheritance, and that both countries were entitled to a certain autonomy. As long as common law was observed, this autonomy does not force a country’s tax system to adapt to the various tax systems of other member states, thus avoiding the possibility of double taxation.
Tax law is a complex subject, especially in view of possible double taxation and the various double taxation agreements. A lawyer experienced in tax law can help to answer legal questions.
ABOUT THE AUTHOR: GRP Rainer LLP
GRP Rainer LLP is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices in Cologne, Berlin, Bonn, Dusseldorf, Essen, Frankfurt, Hamburg, Hanover, Munich, Stuttgart, Bremen, Nuremberg and London UK.
Copyright GRP Rainer LLP
More information about GRP Rainer LLP
View all articles published by GRP Rainer LLP
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
