GERMANY Trends and Developments Contributed by: Tanja Schienke-Ohletz, Flick Gocke Schaumburg
forum state. This mechanism is expressly provided for in the EU Succession Regulation. According to Article 35 of the EU Succession Regulation, the application of a provision of the foreign law chosen may be refused if it is manifestly incompatible with the public policy ( ordre public ) of the state in which the court is seised. It is important to note that the public policy exception must be applied restrictively. It does not serve to cor- rect mere differences between legal systems. Foreign law is generally applied even if it deviates significantly from national law. Only if the result of its application would lead to a fundamental conflict with central prin- ciples of the domestic legal system can public policy intervene. There is an example from German case law in which EuErbVO was corrected by the principle of public pol- icy. A British citizen was living in Germany. According to EuErbVO, which also applied to the UK at the time, German inheritance law was therefore legally applica- ble to his succession. However, in this specific case, he did not want to apply German compulsory inherit- ance law. To avoid the compulsory portion, he there- fore chose to apply British law to his succession by means of the permissible choice of law. After his death, a legal dispute arose in Germany because a beneficiary of the compulsory portion objected to the application of British law and demand- ed his compulsory portion under German inheritance law. The German Federal Court of Justice concluded that German inheritance law should apply in this case despite the permissible choice of law. This is particu- larly the case if the chosen law does not provide for a minimum share for close relatives comparable to Ger- man compulsory inheritance law and disadvantages the respective relatives (as in the present case). The Federal Court of Justice ruled that, if there is a sufficient domestic connection (eg, habitual residence and assets in Germany), the complete disinheritance of a child under English law may violate German pub- lic policy if the child does not receive a compulsory portion independent of need. The problem here is that, in principle, EuErbVO allows this choice of law. Nev- ertheless, public policy remains an important instru- ment of security. It ensures that international private
law does not lead to the undermining of fundamental principles of national law. Sharia and public policy? Sharia may be a relevant case of application also potentially subject to the public policy reservation: if the application of Islamic inheritance law in individ- ual cases leads to results that are incompatible with fundamental principles of German law, in particular the principle of equal treatment (eg, discrimination against female heirs), foreign law will not be applied in this respect. In particular, the unequal treatment of heirs based on gender or religion, and the absence of compulsory portion claims, may regularly constitute a violation of German public policy. Consequences for international succession advice For international advisers, this means that although the provisions of the EU Succession Regulation are primarily decisive when structuring cross-border suc- cessions, it should always be checked as to whether the application of the chosen law could lead to results that would be incompatible with fundamental princi- ples of the relevant legal system. In such cases, there is at least a theoretical risk that a court will refuse to apply individual provisions on the grounds of a viola- tion of public policy. International inheritance tax law In addition to inheritance law issues, the tax treatment of succession also plays a central role. Unlike civil law, there is no comprehensive international harmonisation in the area of inheritance tax. Each country has its own regulations on the taxation of inheritances and gifts. German inheritance tax is a wealth tax – ie, it is not the estate that is taxed, but the individual wealth of each person. Accordingly, each recipient has their own allowance and pays inheritance tax according to the progressive tax rate. From a German perspective, it therefore makes sense to transfer the estate assets to many different persons. Germany levies both inher- itance tax and gift tax. Both taxes are largely identical in structure and generally cover transfers of assets free of charge. Basis for tax liability Tax liability can arise from several different bas- es. Unlimited tax liability applies in particular if the
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