Waiver of exit tax upon return to Germany

According to Section 6 (1) of the Foreign Taxes Act (FTA), where a taxpayer’s unlimited tax liability ceases through the taxpayer giving up his German residence/habitual abode, any material shareholdings held in his private property will be deemed as disposed of even without a sale and any capital gain on the deemed disposal will be taxable under Section 17 (1) of the Income Tax Act (ITA). Section 6 (3) FTA provides for this so-called exit tax to be subsequently waived in certain circumstances.

The Münster Tax Court held that in addition to the (objective) re-establishment of the unlimited tax liability (i.e. the re-establishment of the German residence/habitual abode), it was also necessary for the taxpayer to provide credible evidence that the will to return existed (subjectively) upon departure.


The plaintiff had moved to Dubai and given up his domestic residence and habitual abode in Germany. At the time of his departure, the plaintiff held interests in several German-resident companies. Two years after his departure, the plaintiff re-established his habitual residence in Germany. When assessing the plaintiff's income tax for the year of departure, the tax office recorded capital gains in accordance with Section 6 (1) FTA in conjunction with Section 17 ITA. The plaintiff appealed the assessment arguing that due to his return to Germany the taxation must be waived with retroactive effect. The tax office refused to waive the tax on the grounds that the plaintiff had not made clear his intention to return when he left the country.


The Münster Tax Court refused the plaintiff’s appeal. The plaintiff had not credibly shown that at the time of his departure he had had the intention to become tax resident again in Germany at a later point in time. In order for the exit tax to be waived, Section 6 (3) Sentence 1 FTA requires no only that the taxpayer becomes subject to unlimited tax liability again within a five year period but also that the cessation of the unlimited tax liability was based solely upon a temporary absence. This was to be regarded as a subjective element of the constituent requirement that the intention to return existed at the time of departure. § 6 (3) FTA did not apply to failed or “aborted” emigrations. There was no requirement to notify the tax office of the intention to re-establish the unlimited tax liability at the time of departure, but the taxpayer had to be able to show credibly upon his return, that he had always intended the emigration to be temporary. In the case before the Court, however, the plaintiff had not succeeded in establishing this on a prima facie basis.

The Court granted leave to appeal to the Supreme Tax Court.


Judgment of the First Senate of the Münster Tax Court of 31 October 2019 (Ref. 1 K 3448/17 E), published on 2 December 2019.

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