The tax court Cologne has doubts under European law about the conditions for the reimbursement of capital gains tax in the case of widely held stock. It has submitted questions on this to the European court of justice.
The plaintiff is a corporation domiciled in Great Britain holding less than six percent of a German subsidiary. The plaintiff's 100 percent shareholder was a listed foreign corporation. The plaintiff had received profit distributions from its subsidiary, for which capital gains tax plus solidarity surcharge were withheld and transferred.
Proportionate refund of capital gains tax
The Federal Central Tax Office granted the plaintiff only a pro-rata refund of the capital gains tax in connection with the relevant double tax treaty. It refused to grant a refund of the capital gains tax beyond this as the plaintiff had not provided necessary evidence.
Regulations in the German Corporate Tax Act
The corresponding provision in the German Corporate Tax Act (sec. 32 para. sentence 2 no. 5 Corporate tax Act) requires for the further refund of the capital gains tax, among other things, that the tax cannot be credited to the creditor or a shareholder directly or indirectly involved in the creditor or that the tax cannot be deducted as operating expenses or as income-related expenses. The possibility of a tax credit carryforward is equivalent to a tax credit.
In addition, the foreign tax authority has to certify that the German withholding tax cannot be credited, deducted or carried forward and to what extent a tax credit, deduction or carryforward has not actually been made.
European court of justice submission
The tax court Cologne doubts whether these requirements are compatible with the principle of the freedom of movement of capital, the principle of proportionality and the principle of "effet utile" (practical effectiveness of European law). It has therefore referred the matter to the European court of justice in Luxembourg for clarification in the form of a preliminary ruling.
Tax court Cologne, ruling of May 20, 2020 (Case No. 2 K 283/16); Reference number of the reference proceedings at the ECJ: C-572/20.
(FG Köln / STB Web)
As the tax court Münster decided, the cancellation of exit tax after the sale of shares requires the submission of a tax return in the country of residence.
A tax assessment notice, in which a notional capital gain on the sale of shares in a corporation due to a relocation to another EU country is assessed, is revoked, if the shares are later sold at a lower value and the reduction in value is "not taken into account" in the arriving country (sec. 6 para. 6 sentence 1 Foreign Tax Act). However, according to the ruling of the tax court Münster dated September 17, 2020 (Ref. 5 K 3356/17 E), this provision does not apply if no tax return is submitted in the country of arrival.
Notional capital gain and tax deferral
The plaintiffs, who were filing jointly, relocated from Germany to Austria. One of the plaintiffs held 50 percent of the shares in a domestic corporation (GmbH). The fair market value of the share was higher than the acquisition costs at the time of relocation. The tax office recorded the resulting notional capital gain and deferred the assessed tax in accordance with sec. 6 para. 5 Foreign Tax Act. Four years later, the plaintiff sold the shares and achieved a lower capital gain. The impairment was due to operational reasons. Due to the sale, the tax office revoked the deferral.
The plaintiff argued that it would be pointless to recognize the impairment in Austria in the form of loss carryforwards because he was no longer employed. Therefore, they did not file any tax returns in Austria.
Non-recognition of the impairment in the country of arrival has to be proved
However, the lawsuit was unsuccessful. Although the actually generated capital gain was lower than the previously assumed notional capital gain, the plaintiffs have not proved that the impairment had not been taken into account for income tax purposes in Austria. Such non-consideration presupposes an unsuccessful application in the country of arrival.
It is irrelevant that the plaintiff did not obtain any taxable income in Austria and will probably not obtain any in the future. The term "recognition of impairment" has to be interpreted broadly to the effect that even the abstract possibility of recognition in the context of a loss carryforward was sufficient.
The Senate has allowed to lodge the appeal to the Federal Fiscal Court.
(FG Münster / STB Web)
In view of the current pandemic situation, the agreement between France and Germany to avoid double taxation will be extended until the end of the year.
The consultation agreement concluded with France on May 13, 2020 on the avoidance of double taxation and on mutual administrative and legal assistance in the field of taxes on income and wealth, trade taxes and real estate taxes, will be automatically extended by one month at the end of each calendar month, unless it is terminated by the competent authority of one of the contracting states at least one week before the beginning of the following calendar month by written notification to the competent authority of the other contracting state.
The Federal Ministry of Finance announced that due to the current pandemic situation with France, it has now been agreed that the consultation agreement will remain in force at least until December 31, 2020.
The agreement is intended to ease the burden on cross-border workers with regard to measures to combat the Covid-19 pandemic.
PDF download: BMF letter of 23 October 2020
(BMF / STB Web)
The international community G20 and the OECD are working together on the fiscal challenges of digitalisation of the economy. An agreement is to be concluded by mid of 2021 according to a recently published declaration.
137 countries and territories are working together in multilateral negotiations on international tax rules. They have now agreed that the two-pillar approach, which has been in progress since 2019, is a good basis for such an agreement.
Pillar 1 involves new rules on where taxes are to be paid ("connecting rules") and a fundamentally new approach to the distribution of taxing rights between countries. The aim is to ensure that highly digitized or consumer-oriented multinational companies pay tax where they conduct a permanent and essential business activity - even if they are not physically present there (which is a prerequisite for taxation under the current rules).
Pillar 2 aims to introduce a global minimum tax, which would enable countries to address remaining problems of profit reduction and profit shifting by multinational companies.
Global corporate tax revenue
An impact analysis presented for this illustrates the overall effect of the two-pillar solution under discussion. With the global minimum tax envisaged for Pillar 2, global corporate tax revenue could be increased by up to four percent or USD 100 billion annually. A further USD 100 billion could be redistributed between market states in accordance with the plans for Pillar 1 for a fairer international tax framework.
Further information/ documents on the so-called BEPS project can be found:
(OECD / STB Web)
The European Commission wants to improve working conditions and social standards in supply chain. Since voluntary commitments by companies in third countries have not become the norm, due diligence obligations are to be enshrined in law.
Only every third company in the EU carefully examines its global supply chain with regard to human rights and environmental impact. This is the result of a study on regulatory options for due diligence in supply chain, which the Commission presented in February. "Voluntary commitments by companies have not become the norm; now we are working towards mandatory due diligence standards," said Social Affairs Commissioner Schmit. Labour rights will now also be included in the EU's trade agreements with third countries, the Commissioner said, referring to the EU-Vietnam trade agreement.
Do not just think of shareholders
Concrete legislative proposals are to follow in the coming year. "We will be working on two elements: on the one hand on corporate law. It is clear that management boards must also look after the long-term interests of companies. They should not only think about shareholders in the short term, but also consider the long-term impact of their company on the environment and human rights. The second part of the legislative initiative relates to due diligence in supply chain. Not only in Europe, but globally, we need to see how we can create rules on social issues, environmental impact and human rights," said EU Justice Commissioner Reynders.
(EU-Commission / STB Web)
On September 24, 2020, the European Commission presented a package for the digitalization of the financial sector, which includes a strategy for large scale payments as well as proposals on crypto assets and the stability of digital systems.
According to the Commission, consumers could hope for more choice of modern payment methods and financial services. The aim is to achieve a fully integrated large scale payment system in the EU, including solutions for instant cross-border payments. At the same time, consumer protection and financial stability must be guaranteed.
The EU Commission has also presented new legislation on crypto assets for the first time. The "Regulation on markets for crypto asstes" is intended to promote innovation. The new regulations should enable operators to provide their services throughout the EU (concept of the European passport). As security measures, capital requirements, the safekeeping of assets, a mandatory complaints procedure available to investors and rights of the investor vis-à-vis the issuer are intended.
The additional proposed legislation on digital operational stability aims to ensure that all participants in the financial system have the necessary safeguards in place to mitigate cyber attacks and other risks. In addition, a supervisory framework is to be introduced for ITC-providers such as cloud computing service providers.
Further information on the adopted package
(EU Commission / STB Web)
If a company invites its customers to a ski trip, it is already questionable whether it is considered a business trip. In any case, skiing is not legally insured against accidents, as far as it is part of the leisure sector. This was decided by the Hessian higher social court.
Employees on business trips are generally insured against accidents by law. However, this does not apply ‘around-the-clock’. Rather, the specific activity on a business trip - just as at the workplace - must be essentially related to and serve the employment relationship.
The managing director of a specialist retailer based in Darmstadt organized a six-day ski trip to Aspen, Colorado, for corporate customers to intensify customer loyalty. During the trip, the 50-year-old fell during a ski run and was operated in the USA. The employer's liability insurance association refused to recognize this as an accident at work.
Skiing is not one of the duties of a managing director
The judges in both instances also denied that there had been an accident at work. The relevant ski run was a leisure activity and therefore not legally insured against accidents. Skiing obviously neither did not belong to the managing director’s obligations under the employment contract nor had he been given any corresponding instruction to participate in a ski run.
In addition, not all activities useful to a company are covered by the insurance. It is already questionable whether the ski trip was at all a business trip or not rather a so-called motivational trip or for incentive purposes. In any case, skiing was the center of the journey and was, according to the submitted flyer, even the only activity.
Az. L 9 U 188/18 - the revision was not permitted.
(Hess. LSG / STB Web)
Business trips abroad are associated with additional risks in times of the worldwide spread coronavirus. In a checklist, the German statutory accident insurance (DGUV) provides information on what companies should pay attention to before sending employees abroad.
The recommendations concretize the SARS-CoV-2 occupational safety standard of the German Federal Ministry of Labor and Social Affairs (BMAS) and give advice on what companies should consider when it comes to prevention. The recommendations make no claim to completeness, as they are constantly being adapted to the changing situation.
Safety instructions for business trips:
The German statutory accident insurance DGUV offers more information online: PDF download.
(DGUV / STB Web)
The European Commission and the European Investment Fund (EIF) want to facilitate access to finance for cultural and creative companies in the Corona crisis.
For this purpose, on July 29, 2020, they adapted the guarantee facility for the cultural and creative sector to give companies more flexibility in repaying loans that are handed over by financial intermediaries such as banks and savings banks.
It is intended to alleviate the economic bottlenecks caused by the Corona crisis. Various creative sectors will benefit, including news media, audiovisual media, design, visual arts, music and architecture.
The new support measures would be available from August 2020 onwards according to the Commission, and would apply retroactively to loans due from April 1, 2020.
(European Commission / STB Web)
The European Commission decided on July 23, 2020 to extend the temporary exemption from customs duties and VAT on the import of medical and protective equipment from third countries until the end of October 2020. By resolution of October 28, 2020, the exemption has now been extended until April 30, 2021. For the United Kingdom, the extension applies until December 31, 2020 as the UK will then leave the EU.
With this measure, the Commission intends to carry on supporting the fight against the corona virus and to financially facilitate the supply of urgently needed medical equipment to doctors, nurses and patients. The exemption from customs duties covers masks and protective equipment as well as test kits, respiratory equipment and other medical devices.
(European Commission / STB Web)
Companies that use tax havens to avoid paying taxes should not receive financial support from EU member states. The European Commission has now recommended this.
This restriction should also apply to companies that have been convicted of serious financial crimes, such as financial fraud, corruption or non-payment of taxes and social security contributions.
It is unacceptable that companies receiving public support use tax havens to engage in tax avoidance practices, said Margrethe Vestager, Executive Vice-President of the Commission responsible for competition policy. This would be a misuse of national and EU funds at the expense of taxpayers and social security systems.
Today's recommendation gives guidance to member states on how to prevent, in line with EU law, public support from being used for tax fraud, tax evasion, tax avoidance, money laundering or financing of terrorism.
In particular, public support should not be given to companies with links to countries or territories included in the EU list of non-cooperative countries and territories (for example, companies that are tax resident in such a country or territory). The Commission proposes that member states wishing to include such provisions in their national legislation should make the granting of financial assistance subject to a number of conditions.
(European Commission / STB Web)
The OECD has announced the current figures for the automatic exchange of information according to its tax standard.
According to the OECD, almost 100 countries participated in the automatic exchange of information last year. As a result, the tax authorities of these states received data on 84 million financial accounts that their residents had set up abroad, representing a total of ten trillion euros in assets.
This is a significant increase compared to 2018, the organization further reports: In this first year of information exchange, only information on 47 million financial accounts with total assets of five trillion euros had been exchanged.
The common reporting standard obliges states to automatically exchange information obtained from domestic financial institutions on financial accounts of non-residents annually. The multilateral information exchange system set up by the OECD and administered by the Global Forum provides a wealth of information to countries worldwide, including many developing countries. The Global Forum now includes 161 countries and territories that have committed to the OECD tax standards.
(OECD / STB Web)
Equal pay for equal work in the same locality: this maxim will also apply to the employment of foreign workers in the future. On July 3, 2020, the Bundesrat approved the Bundestag's legislative resolution to transpose the amended EU directive on the posting of workers into German law.
As a result, employees posted from abroad will be entitled to a minimum wage or to a collective wage from generally binding collective agreements. Regional collective agreements are excluded. In addition, foreign employees will be entitled to Christmas and vacation pay as well as extra payment for dirty work and danger money in the future. If employers pay their employees bonuses for travel, accommodation and subsistence costs, then those may not be credited against the minimum wage according to the legal decision.
After 12 months on equal terms
The law also ensures that after 12 months foreign employees will be subject to all the working conditions prescribed in Germany. Only in justified cases may employers demand an extension of six months.
The law came into force on July 30, 2020.
(Bundesrat / STB Web)
If yes, the following information should be kept in mind:
In principle, every German company is subject by tax law to the obligation to keep and store its books and other necessary electronic records in Germany. The purpose of keeping the books in Germany is to give the tax authorities access to data that is essential for taxation purposes at all times.
As companies increasingly operating on a global scale, larger groups in particular are seeking to centralize their accounting and recording activities for organizational or financial reasons. Already in 2008, the legislator had created the legal framework for companies to be able to relocate and store their electronic accounting worldwide, including countries such as the USA or Switzerland, under certain conditions. Since then, more and more internationally active companies have made use of this option.
To the Information sheet "Accounting abroad for German companies and permanent establishments"
On 18 February 2020, the EU Council adopted simplified VAT rules for small businesses. These should help to reduce administrative burdens and compliance costs for small businesses.
Businesses have VAT obligations and act as VAT collectors. This results in compliance costs that are proportionally higher for small businesses than for larger companies. Under the current VAT regime, the VAT exemption for small businesses can only be claimed by domestic businesses. Under the reform now adopted, small businesses established in other member states may in future be granted a similar VAT exemption.
Annual turnover thresholds
Under the new scheme, small businesses may qualify for simplified VAT compliance rules if their annual turnover does not exceed a threshold set by a member state concerned, which may not exceed EUR 85,000. Under certain conditions, small businesses from other member states that do not exceed this threshold will also be able to benefit from the simplified scheme, provided that their total annual EU-wide turnover is not exceeding EUR 100,000.
The new regulation will be applicable from January 1, 2025.
Anybody who is resident in Germany at the time of inheritance pays inheritance tax in Germany regardless of any other modalities abroad.
A comparable acquisition made under foreign law on account of death is also subject to German inheritance tax if the heir is a German national at the time the tax arises. This is the case if the heir has a residence or habitual place of abode in Germany. This was decided by the Hessian Finance Court in its ruling of August 22, 2019 (Ref. 10 K 1539/17).
The claim had been filed by a foreign woman who was living in Germany at the time of her father's death. When she - a few months later - declared acceptance of the inheritance, she had already given up her residence here. Nevertheless, the tax office took the view that the inheritance was subject to German inheritance tax, irrespective of the fact that under Italian law an inheritance did not automatically accrue to the legal heir, instead an explicit acceptance of the inheritance was required.
The Hessian Finance Court followed this argumentation: The plaintiff was resident in Germany at the time the tax accrued, so German inheritance tax law was applicable. However, according to Italian law, the inheritance tax payable by the plaintiff had to be credited against the tax to be assessed in Germany.
The appeal is pending at the Federal Fiscal Court under file number II R 39/19.
The European Commission provided the member states a temporary aid framework to support the economy in the Corona crisis.
"EU state aid rules provide member states with a toolbox to act quickly and effectively - without undermining the unity that Europe needs in a crisis," said Executive Vice-President Margrethe Vestager.
Among other things, the new framework will allow member states to grant subsidies or relief (e.g. in taxes) of € 500,000 to companies and to secure loans with state guarantees. The eased rules are expected to take effect in the coming days.
Already on March 13, 2020, the commission had listed in a notification that state aid is now possible without generating problems with the EU Trade Commission. Based on the experience gained from the financial crisis in the years 2007 to 2009, the temporary framework, which is now being rapidly consulted with the member states, will make further aid possible in the short term. For example, airlines could receive short-term support, even if they had already received strict conditions for state aid in the past.
The Federal Ministry of Economics and the Federal Ministry of Finance decided that, with immediate effect, export transactions on short payment terms of up to 24 months can also be covered within the EU and in certain OECD countries by official export credit guarantees of the Federal Government.
The new state guarantees are intended in particular to alleviate possible shortages in the private export credit insurance market. They are made possible by a decision of the European Commission to amend the provisions of the so-called Short-Term Notification. This temporarily removes the list of marketable risks, i.e. countries for which normally no cover by state export credit guarantees is permissible.
The commission has thus responded quickly and flexibly to the requests of several member states, including Germany. It has given member states the possibility to react promptly and decisively should private export-credit insurers withdraw in response to the corona pandemic.
Besides the EU, beneficiary countries include Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland, the United Kingdom and the United States. The extended cover facilities are initially limited until December 31, 2020. Details of the extended cover facilities for short-term business can be found on the website of the Federal Mandate.
Since the introduction of the free movement of labor for the Eastern European states, the number of cross-border commuters from these countries in particular has increased. This is shown in a study by the Institute for Employment Research (IAB).
Between 2010 and 2019, the number of cross-border commuters working in Germany rose from under 69,000 to more than 191,000. It has thus almost tripled since 2010. This increase is mainly due to the introduction of the free movement of labor for workers from the Eastern European EU accession states. The number of border commuters has increased not only in Germany's border regions, but also in districts located in the upcountry.
Most workers come from Poland
In most federal states, cross-border commuters from Poland form the largest group. Cross-border commuters from the respective neighbouring states also play an important role. In 2019, the second largest group after the 69,000 cross-border commuters from Poland were the 36,000 cross-border commuters from France. In third place were the more than 34,000 Czech cross-border commuters.
In the meantime, the number of cross-border commuters from countries not bordering Germany has also increased significantly. There are now almost 9,000 cross-border commuters from Romania and around 5,000 each from Hungary and Slovakia.
The IAB study is available online here. It is based on labour market data collected before the border closures due to the Corona crisis.
Together with the credit insurers, the Federal Government is setting up a billion-euro protection scheme to secure supplier credits for German companies. The aim is to secure the movement of goods in particular.
Credit insurances protect suppliers against payment defaults if a domestic customer or a customer abroad is unable or unwilling to pay the invoice. With the help of the shield, credit insurers can maintain existing cover commitments and also take on new ones, despite the considerably increased risk of default.
Specifically, the Federal Government will assume a guarantee for indemnification payments by the ECAs of up to 30 billion euro for the year 2020. The associated leverage would result in the coverage of a business volume of about 400 billion euro. The ECAs participate substantially and leave 65 percent of the premium income in 2020 to the Federal Government. In addition, they bear losses up to an amount of 500 million euro themselves and assume the default risks exceeding the guarantee of the Federal Government.
This was announced by Federal Finance Minister Olaf Scholz and Federal Economics Minister Peter Altmaier in a joint press release.
The Cayman Islands, Palau, the Seychelles and Panama are now also on the EU list of non-cooperative countries and territories for tax purposes.
The EU has decided to classify the Cayman Islands, Palau, the Seychelles and Panama as non-cooperative countries for tax purposes. The territories concerned had not implemented tax reforms to which they had committed themselves.
In addition, twelve countries and territories were granted time extensions to allow them to implement necessary reforms. Most of them concern developing countries without a financial centre, which have already made considerable progress, according to the council’s conclusions.
16 countries deleted
Sixteen other countries and territories - Antigua and Barbuda, Armenia, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cabo Verde, Cook Islands, Curaçao, Marshall Islands, Montenegro, Nauru, Niue, Saint Kitts and Nevis, Vietnam - have already implemented further requested reforms and have therefore been removed from the list.
The latter should contribute to the ongoing efforts to promote good governance in the tax area worldwide. The list was first established in December 2017 and included countries and territories that have either not engaged in a constructive dialogue with the EU on good governance in the tax area or have not fulfilled their commitments to implement reforms to meet EU criteria in a timely manner.
Appeal to nation-states to prevent tax evasion
Together with the updating of the list, the council has issued guidelines for further coordination of national defensive measures in the tax area vis-à-vis non-cooperative countries and territories already in December 2019. A member states are requested to apply, as of January 1, 2021, a legislative defensive tax measure vis-à-vis the countries and territories on the list in order to encourage them to comply with the criteria of the Code of Conduct for Fiscal Justice and Transparency Verification.
On February 12, 2020, the German Federal Cabinet adopted the new EU directive on the posting of workers. The draft law is intended to improve the situation of employees who are assigned to Germany.
The law is intended to ensure that entire pay grids, overtime rates or even bonuses (for example, dirty-work and hazard allowances) and benefits in kind provided by the employer must in future be paid for all employees working in Germany. At the same time, remuneration can differentiate more strongly according to activity, qualification and professional experience. The draft law also regulates the requirements for accommodation that must be provided by the employer.
The draft bill is also intended to prevent that money received by the employee to reimburse his or her expenses from being offset against the remuneration.
If the listed working conditions are regulated in generally binding collective agreements applicable throughout Germany, they will also apply to posted workers in future - in all sectors.
The law can now be submitted to the Bundesrat and parliamentary proceedings can be initiated. The Implementation Act is scheduled to come into force on July 30, 2020, as provided for by the revised Posting of Workers Directive.
The European Commission has come to the conclusion that the ‘Sanierungsklausel’, a German tax relief for ailing companies, does not constitute state aid within the meaning of EU rules.
The so-called ‘Sanierungsklausel’ allows a distressed company to offset losses in a given year against profits in future years, despite changes in the shareholder structure.
The decision follows rulings by the European Court of Justice (C-203/16 P, C-208/16 P, C-209/16 P, C-219/16 P), which in 2018 annulled a Commission decision on state aid from 2011. In order to implement these judgments, the Commission has assessed the measure against a broader framework, including the provisions of German law which generally allow companies to carry forward losses for tax purposes.
The EU Competition Authority concluded that the restructuring clause does not deviate from these general rules and therefore does not confer a selective advantage on ailing companies compared to other companies.
A European prosecution is to prosecute VAT fraud and misuse of EU funds as of the end of 2020. On January 22, 2019, the Federal Cabinet adopted a draft law for corresponding changes in German law.
The European Public Prosecutor's Office is to be the first independent and de-centralized Public Prosecutor's Office in the European Union to prosecute and submit cases against the EU budget to the court, such as subsidy fraud, corruption and cross-border VAT fraud.
The former head of the Romanian anti-corruption authority Laura Codruța Kövesi will become the first European Public Prosecutor General. The European Public Prosecutor will have his seat in Luxembourg.
In the investigation proceedings conducted by the European prosecution, the relevant legislation of the member states will apply in addition. Supplementary provisions are therefore needed in German law. In addition, the draft law provides, among other things, that the criminal provisions on the protection of private secrets and official secrets will in future also apply to all European public officials.
"We are creating a joint EU criminal prosecution authority that can investigate quickly and effectively across national borders. We are bringing together the know-how of investigators from 22 member states," said Federal Minister of Justice Christine Lambrecht.
About 460,000 jobs in Germany are directly or indirectly linked to exports to the UK. Approximately 60,000 of these are accounted for by employees in the automotive industry. This is the result of a study of the Institute for Employment Research (IAB).
However, the UK's imminent withdrawal from the EU does not reduce exports to zero, according to the labour market researchers, and could also open up new trade opportunities for German companies. The continuing great uncertainty has led many German companies to look for new trading partners in other markets and to restructure their production chains.
In addition, imports from the United Kingdom would also decrease. The extent to which the adaptation of companies to the changed conditions in trade with the United Kingdom could prevent possible job losses was still open.
Germany exported goods and services worth almost 109 billion euro to the UK in 2018. Imports amounted to almost 63 billion euro. The share of exports to the United Kingdom, measured against total exports, was 6.8 percent, while the import share was 4.5 percent. In terms of exports, the United Kingdom is Germany's fifth most important trading partner.
In a decision, the Münster Tax Court dealt with the taxation of capital appreciation on taking up residence abroad, which affects taxpayers if they move abroad and are therefore no longer subject to unlimited taxation in Germany.
According to the Foreign Tax Act (AStG), the taxpayer's withdrawal from unlimited tax liability leads to the fact that, even without a sale, the hidden reserves of major capital company investments held as private assets are disclosed and generate a taxable capital gain.
This so-called exit taxation can be subsequently eliminated upon return. In addition to the reestablishment of the unlimited tax liability, it is also necessary to substantiate that the will to return was already present at the time of departure, as decided by the Münster Tax Court (FG) in its ruling of October 31, 2019 (Ref. 1 K 3448/17 E). The Foreign Tax Act presupposed for the removal of the exit taxation that the taxpayer would not only become liable to unlimited taxation again within five years, but also that the termination of the unlimited tax liability was based on only temporary absence. This was to be seen as a subjective element of the facts in the sense of an intention to return at the time of departure.
The provision (sec. 6 para. 3 AStG) did not apply to failed or abrupted emigration. The intention to re-establish unlimited tax liability did not have to be notified at the time of departure, but could only be substantiated upon return. In the case of the dispute, however, the plaintiff had not succeeded in establishing this credibility.
The Senate has allowed the appeal to the Federal Fiscal Court.