GERMANY Trends and Developments Contributed by: Tanja Schienke-Ohletz, Flick Gocke Schaumburg
deceased or the acquirer has their domicile or habit- ual residence in Germany. In this case, the worldwide assets are generally subject to German inheritance tax. In addition, there is limited tax liability for certain assets located in Germany. These include: • German real estate; • shares in German corporations; and • business assets of German companies. Accounts with German banks and cash are not includ- ed. These regulations mean that foreign heirs may also be subject to German inheritance tax if they acquire assets in Germany. The problem of international double taxation A key challenge in international inheritance tax law is the risk of double taxation. Since several countries can claim tax liability at the same time, there is a pos- sibility that a transfer of assets will be taxed multiple times. A classic example is the case of a German entrepre- neur residing abroad who dies. The country of resi- dence can tax the entire estate, while Germany simul- taneously levies a tax on assets located in Germany. To avoid such double taxation, some countries have concluded double taxation agreements for inherit- ance tax. However, Germany has only concluded such agreements with a few countries, including: • France; • the United States; • Denmark; • Greece; However, there are no such agreements with many important economic partners, including numerous EU countries. In cases where there is no double taxation agreement, a unilateral relief provision applies under German law. Under certain conditions, foreign inheritance taxes • Sweden; and • Switzerland.
can be credited against German tax. Although this does not result in double taxation, the higher tax rate of the two countries involved prevails. Careful tax planning is therefore necessary for international suc- cession structures. Significance of double taxation agreements Existing double taxation agreements for inheritance tax generally follow certain basic principles. A distinc- tion is often made between different types of assets – for example between immovable property, business assets and other assets. Real estate is usually taxed in the country where it is located, while movable assets are often attributed to the country of residence of the deceased. Company shareholdings may be treated differently depending on their structure. Crediting of comparable taxes If there is no double taxation agreement, only the other tax is credited. From a German perspective, foreign inheritance taxes are only credited at the request of the acquirer if the foreign assets are subject to inherit- ance tax both abroad and in Germany, and no double taxation agreement applies. The prerequisite is that the foreign tax corresponds to German inheritance tax – ie, it is triggered by death and applies to the estate upon transfer. Capital gains tax incurred in the event of the death of a testator is not creditable. In such cases, double taxation occurs. If the taxes are not comparable, only deduction as an estate liability is possible. The foreign tax must be assessed, paid and not subject to any reduction. Proof must be provided by means of documents. If the other foreign country does not levy the tax, it cannot be credited either. Double taxation in an international context In a German-Spanish inheritance case, double taxa- tion that was prevented neither by a double taxa- tion agreement nor by the ECJ occurred. An heiress resident in Germany inherited, among other things, a capital claim from a Spanish bank from her mother, who was also resident in Germany. This resulted in double taxation of the claim because it was subject to inheritance tax in Spain, and to worldwide asset taxa- tion in Germany. However, the Spanish tax was not credited against the German inheritance tax because, in this case, the tax does not apply to so-called foreign assets within the meaning of the German Inheritance
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