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Taxation of Cross-Border Inheritances and Gifts

September 28, 2022

AGN EMEA Taxation Task Force (TTF) Newsletter

Cross-border inheritances and gifts are on the rise due to the changes in life and work – what should you know?

We would like to draw your attention to cases in which the persons involved are residents in different countries, or the subject of the transfer are assets like real estate, cash assets or shares not held in the country of residence.

In these cases, tax advice is urgently recommended both in the countries of residence of the involved persons and in the country of domicile of the concerned assets since the tax triggering factors and the extent of an inheritance and gift tax can be very different in the concerned jurisdictions.

From a German perspective, we must distinguish between unlimited and limited tax liability.

The unlimited inheritance tax and gift tax liability is triggered in Germany if one of the persons involved has his or her residence or habitual abode in Germany. For example, in the case of inheritance, either the decedent or heir. In the case of a gift, either the donor or the donee. Assets located worldwide are then subject to unlimited tax liability in the case of inheritance or gift.

The Managing Director was simultaneously the CEO and the only shareholder of the Swiss parent company. The monthly fee for the service was set based on the salary of the previous German Managing Director. The German tax authorities were of the opinion that the payments to the Swiss company should be subject to German wage tax and therefore issued a corresponding liability notice to the German subsidiary.

Example: During a permanent stay of two years in Germany for professional reasons, an Austrian employee inherits a house and cash in Austria after his father’s death. Although no inheritance tax is due on this transfer of assets in Austria – because of the abolition of the inheritance tax in Austria – this transaction is subject to inheritance tax in Germany, as the heir (Austrian employee) had his
residence in Germany at the time of the inheritance.

If none of the persons involved is a resident in Germany, only the transfer of domestic assets (according to a very narrowly defined list) is subject to inheritance and gift tax within the scope of the limited tax liability in Germany.

Example: Mother and daughter are both residents in France. The mother bequeaths a house in Germany to her daughter. The transfer of the property in Germany is subject to limited inheritance tax in Germany.

Double taxation of inheritances and gifts in Germany and abroad are very common in cross-border cases due to the broad scope of German inheritance and gift tax. Currently, Germany has double taxation agreements with only six states concerning inheritance and gift tax. In the case of unlimited tax liability, double taxation is generally avoided or reduced by crediting the foreign tax.

Taxation Task Force members and AGN tax correspondents are available
to answer your questions and help you!

If you have any questions regarding inheritance and gift tax or need help with the declaration of inheritance and gift tax cases, please get in touch with Norbert Mevissen.

Norbert Mevissen
Fachberater für Internationales Steuerrecht
Tax Partner
Schaffer & Partner Audit & Tax and Schaffer & Partner Legal

Phone: (+49 911) 95 99 80