Tax & Legal

In a case where Germany lost the right to tax the investment in a Spanish corporation the Supreme Tax Court - in contrast to the opinion held by the tax administration - decided that the German exit taxation pursuant to Section 6 para. 1 sentence 1 Foreign Tax Act applies to the year in which the German unlimited income tax liability ends and not at the later point in time when the limited tax liability arises.

According to a decision of the Supreme Tax Court the exception from the exit taxation due to an "only temporary absence" must be granted if the taxpayer again becomes subject to unlimited income tax within five years after leaving Germany and irrespective of the question whether he had from the outset the intention to return.

The ECJ held that the expatriate exit tax rule under Section 6 Foreign Tax Act contravened the principle of non-discrimination contained in the Agreement for the Free Movement of Persons between the EU and Switzerland.

The ECJ has held the Portuguese taxation of the unrealised gains inherent in a company’s assets on change of corporate residence from Portugal to be an unjustified hindrance on the freedom of establishment.

The ECJ has held the Dutch exit tax on the transfer of a company’s place of management to another member state to be excessively burdensome. It would be sufficient to allow establishment of the tax due on the unrealised gains at the time of departure, but to defer collection until the gains are realised.

An ECJ advocate general has suggested the court accept in principle the Dutch exit tax on business, but require deferment of the actual levy until the relevant assets are realised.