ECJ referral on 10% inheritance tax exemption for real property rented out for residential purposes

In a 2021 ruling, the Regional Tax Court of Cologne asked the European Court of Justice (ECJ) for a preliminary decision on the inheritance tax valuation of a developed private property located in Canada. The reason for this is the different treatment of similar property either located in Germany, or in an EU Member State or in a state of the European Economic Area (EEA).


Pursuant to Section 13d of the German Inheritance and Gift Tax Act (ITA) real property is assessed at only 90% of its value for inheritance tax purposes if the property in question is developed land that: (1) is rented out by the owner for residential purposes, (2) is located in a Member State of the EU or the EEA and (3) is not a business asset taxed preferentially pursuant to Section 13a ITA.

The purpose of the law is to create a (small) tax benefit for landlords renting out their private property to compensate them for not enjoying the same tax benefits as those enjoyed by the owners of commercial rental companies.

In the case pending before the Regional Tax Court of Cologne the plaintiff is a German resident who in 2016 became the owner of developed land in Canada as his father’s legatee. The plaintiff claims to be entitled to the tax benefit under Section 13d ITA (which was Section 13c ITA in the year under dispute).

The only requirement in the statutes which could possibly exclude the plaintiff from the tax benefit is the requirement that the property be in a Member State of the EU or the EEA, which is not fulfilled in the case of Canada.

Referral of the Regional Tax Court

In its decision the Regional Tax Court of Cologne referred the question to the ECJ whether it is compatible with the free movement of capital (Art. 63 TFEU) that Germany limits the application of a provision for a 10% tax exemption included in its inheritance and gift tax law to real property located in a Member State of the EU or the EEA. According to the Regional Tax Court of Cologne it is questionable whether Germany can restrict the tax benefit to EU and EEA situations given that the free movement of capital also applies to third countries.

A national tax regime that distinguishes between assets located in the domestic territory, in a Member State of the European Union or in the EEA or, alternatively, in a third country, can only be compatible with the EU provisions on the free movement of capital if the difference in treatment concerns situations that are not objectively comparable or if it is justified by overriding reasons relating to the public interest. According to the opinion of the Regional Tax Court both of these preconditions for justification are not met in the case of dispute.

The ECJ’s case number is C-670/21 (BA).


Regional Tax Court of Cologne, decision of 2 September 2021 (case ref. 7 K 1333/19); published in November 2021.

EU Tax News: issue 1, 2022, a bi-monthly newsletter prepared by members of PwC’s pan-European EU Direct Tax Group (EUDTG) network.

Zum Anfang