Moving Into And Out Of Germany – When The Fiscal Authorities Reach Their Limits


For many coming from other countries, Germany is an attractive country to which to move. At the same time, each year thousands of people leave Germany for a limited period of time or permanently. German tax law until today has difficulties with the proper treatment of these multiform cases of natural persons moving into and out of Germany.

One of the key questions when moving into or out of Germany is related to the broad German concept of residence for tax purposes (Sec. 8 German Fiscal Code). With the recently revised version of the application ordinance for Sec. 8 German Fiscal Code of 7 August 2017, the fiscal authorities have increased legal certainty in regard to the requirements needed to establish a residence for tax purposes in Germany.

German Federal Constitutional Court has given green light to so called "treaty overrides"

In a judgement of 15 December 2016, the German Federal Constitutional Court has recognized the admissibility in terms of constitutional law of the so-called treaty override. German provisions such as Sec. 50i Income Tax Act and Sec. 20 Foreign Tax Act, which take precedence over the Double Taxation Agreements (DTA) entered into by Germany, are thereby to be accepted. The treaty override stipulated by Sec. 20 Foreign Tax Act is, however, to be understood such that it does not set aside the tax residency rules of the respective DTA. A taxpayer who has moved to Germany but continues to be considered resident abroad according to the applicable DTA, is therefore neither subject to German CFC rules (Sec. 7 et seq. Foreign Tax Act) nor to CFC-like attribution taxation for foreign foundations and trusts (Sec. 15 Foreign Tax Act).

With an amendment dated 25 June 2017 of Sec. 16, para. 2 of the German Inheritance and Gift Tax Act, the legislator has managed (on the second attempt) to find a revision of the tax-free allowance in cases of limited inheritance tax liability that conforms to European law from which some taxpayers who live out of Germany can benefit .

In moving to Italy, since 1 January 2017 "income millionaires" have the opportunity to opt for preferential Italian tax treatment which disregards the actual annual income of the taxpayer. From a German perspective, however, one must consider that in relation to Italy - just as it has in relation to Switzerland and Great Britain - Germany has reserved the application of German expanded limited income tax liability (Sec. 2 Foreign Tax Act) under treaty law.


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