GERMANY Trends and Developments Contributed by: Christian von Oertzen and Philipp Windeknecht, Flick Gocke Schaumburg
each subordinate company or foundation. Although the tax authorities view this as a clarification, this posi - tion has been criticised in legal literature. Distributions from a foreign family foundation Distributions from a foreign family foundation may be subject to income tax if they are comparable to divi - dends. In the case of a Swiss family foundation, the BFH ruled in 2024 that the recipient of the distribution must be comparable to a shareholder. This is the case if they fulfil the requirements set out in the founda - tion’s statutes for receiving distributions, that is, if they belong to the group of beneficiaries and no consid - eration is to be paid in return. However, the recipient does not require any further proprietary or governance rights under the foundation statutes. European Court of Justice upholds limitation of tax class privileges to domestic family foundations The German Gift and Inheritance Tax Act ( Erbschaft- steuer - und Schenkungsteuergesetz , or ErbStG) pro - vides a tax class privilege under Section 15 (2) sentence 1 for domestic family foundations. While contributions to foreign foundations are taxed under tax class III, domestic family foundations benefit from this privi - lege, with taxation based on the kinship between the founder and beneficiaries. In return, they are subject to substitute inheritance tax every 30 years. Foreign family foundations do not benefit from this privilege and are also not subject to substitute inheritance tax. The Cologne Fiscal Court referred the compatibility of this distinction with EU law to the CJEU, which in 2025 held that the exclusion of foreign family founda - tions from the tax class privilege is compatible with the free movement of capital. Although this consti - tutes a restriction, it is justified by the coherence of the German tax system, as the privilege and substitute inheritance tax form a linked regime of relief and sub - sequent taxation. Extending the privilege without the corresponding substitute inheritance tax would dis - rupt this balance, so the limitation to domestic family foundations remains valid. Recognition of foreign family foundations with domestic tax liabilities The BFH ruled in June 2025 that foreign foundations with place of management in Germany are only sub - ject to German substitute inheritance tax if they have
legal capacity. Only civil-law ownership of assets is relevant; economic attribution is irrelevant. In the case of a Swiss family foundation managed in Ger - many, the BFH applied the seat theory, under which legal capacity is determined by German law. As the foundation had no legal capacity under German law, it did not qualify as a family foundation for substitute inheritance tax purposes. The BFH rejected the fiscal court’s view that foreign legal capacity alone suffices. The court also clarified conflict-of-laws rules: the seat theory generally applies to third-country foundations, while the incorporation theory may apply in the EU/ EEA. The ruling confirms that substitute inheritance tax requires legal capacity, not merely a place of man - agement in Germany. In August 2025, the Munich Fiscal Court held in a related case that a Liechtenstein foundation does not lose legal capacity when its place of management is moved to Germany. The tax authorities had treated the relocation as a loss of legal personality and attributed a contribution to the founder for gift tax purposes. The court rejected this, holding that EEA foundations engaged in economic activity may rely on freedom of establishment, displacing the seat theory. As the foundation documents did not grant control rights to the founder, the foundation remained an independ - ent opaque entity, so contributions were not attribut - able to the founder, and the gift tax assessment was annulled. The case is on appeal before the BFH. Taxation of Crypto-Assets In 2025, the German tax authorities released their lat - est guidelines regarding the taxation of crypto-assets, updating the guidelines published in 2022. Accord - ing to the tax authorities, each transaction involving a crypto-asset of any kind may qualify as a taxable event, even if the transaction does not involve an exchange into fiat-money. The Nuremberg Fiscal Court ruled in 2025 that the taxation of these transactions without an exchange into fiat-money is not unconstitutional. The mere trading of crypto-assets (even in great volume) does not qualify as a commercial activity from a Ger - man tax perspective, if this activity is conducted in the usual manner of private investors. If crypto-assets are privately held, they can be sold income tax-free after a holding period of more than one year. This is not the case for crypto-assets which qualify as commercial
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