According to Section 7 (8) sentence 1 of the Inheritance and Gift Tax Act, the increase in value of shares in a corporation is deemed to be a gift. In a most recently published decision, the Supreme Tax Court held that this provision does not contain any subjective elements, neither in the form of awareness of the gratuitous nature nor of an intention of personal enrichment.
Donations to a foundation with legal capacity established by a federal state are not exempt from gift tax if, according to the purposes specified in the statutes of the foundation, the donations do not exclusively serve the purposes of the federal state and are not exclusively used for tax-privileged purposes. This is the conclusion reached by the Supreme Tax Court in a recently published decision.
In a fundamental judgment, the Supreme Tax Court decided that in cases where the taxpayer has fulfilled the notification obligation under Section 30 (1) or (2) of the German Inheritance Tax Act and the tax office requires the submission of a gift tax return the deferral of the limitation period for gift tax assessment only ends when the gift tax return is filed but no later than at the end of the third calendar year after the year in which the tax arose.
The Supreme Tax Court reversed three earlier rulings of the Baden-Wuerttemberg Tax Court and decided that Sweden has no right of taxation, even if at the time of the gift the gift tax had been abolished in Sweden (here: as of 1 January 2005). As a result, a gift made by a donor who has his residence both in Germany and Sweden is subject to the provisions of the German Inheritance and Gift Tax Act.
The Cologne Tax Court has expressed doubts as to whether a family foundation based in Liechtenstein may be denied the inheritance and gift tax privilege applicable to domestic family foundations and has referred this question to the European Court of Justice for a preliminary ruling.
According to a decision of the Supreme Tax Court the so called “extended unlimited gift tax liability” does not violate the constitutional principle of equality and the freedom of movement of capital under EU law. The German gift tax arises if the donor is a resident at the time the gift is made, or the acquirer is a resident at the time the tax arises. If this is the case, the tax is levied for the total amount of assets received, irrespective of whether these are of domestic or foreign origin.
In a recent ruling, the (lower) Tax Court of Hamburg decided that the disproportionate contribution to the free capital reserve of a partnership limited by shares is not a transaction that is subject to gift tax.
Are payments and contributions in kind from a foreign family foundation subject to German income tax? And what is the situation as regards the gift tax? Two tax court decisions shed some light. According to the Supreme Tax Court there is no gift tax liability for the beneficiary. The Regional Tax Court of Hamburg is of the opinion that a one-time payment from the foundation is subject to German income tax.
The Supreme Tax Court has rejected an assessment to gift tax on a supposed hidden distribution to a shareholder on the grounds that a shareholder’s receipt of a hidden benefit is his investment income.
The Supreme Tax Court has held that credit for foreign gift tax is limited to the amount paid in the year of each gift. Lost credit in a prior year cannot be recovered against the higher tax now payable by reason of a higher progressive rate.
