Dual residence does not exclude gift tax liability
The Lower Tax Court of Baden-Wuerttemberg ruled in three proceedings that Sweden has the right of taxation, even if at the time of the gift the gift tax had been abolished in Sweden. In case a donor has his residence both in Germany and Sweden, it is decisive where his main place of residence is.
The plaintiffs are siblings. Their father had given each of them shares in a Swedish limited company in 2005. At the time of the gift, the father was resident in Germany and in Sweden, the center of his vital interests - however - was in Sweden. The German tax office imposed gift tax on all three recipients, due to the fact that the father is resident in Germany and with the abolition of the gift tax in Sweden at the beginning of 2005, Germany had the right of taxation.
The Lower Tax Court considered the appeal admissible and ruled in favor of the taxpayers. Sweden has the sole right of taxation, even if at the time of the gift the gift tax had been abolished in Sweden. In Germany, there is an unlimited tax liability because the donor has a residence in Germany. However, according to the double tax treaty between Germany and Sweden, which covers inheritance, gift, income and wealth tax, the "residence of the persons involved in the gift" is decisive. In case a donor has his residence both in Germany and Sweden, it is important for gift tax purposes where his main place of residence (the center of the taxpayer's vital interests) at the time of the gift is.
A further (extended) allocation of the right of taxation for Germany does not exist under the regime of the double tax treaty, since the shares given as gifts neither qualify as “immovable assets" under Article 24 (1) of the treaty nor as "movable business assets of a part of a business located in Germany" as stated in Article 24 (2). It is irrelevant whether the other Contracting State (Sweden) actually assesses gift tax, even if - as a result - the gift remains untaxed as in the cases in dispute.
Lower Tax Court of Baden-Wuerttemberg, judgment of August 5, 2020 (ref. 7 K 2777/18, 7 K 2778/18 and 7 K 2779/18); the appeals are pending before the Supreme Tax Court (ref. II R 28/20, II R 29/20 and II R 27/20).