Taxation Of Trust Distributions In Germany

Author:Dr. Andreas Richter and Maximilian Haag
Profession:P+P Pöllath + Partners
 
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The German Federal Tax Court recently published a decision stating that distributions from a foreign trust to beneficiaries resident in Germany are subject to German gift tax (Bundesfinanzhof, September 27, 2012 - II R 45/10).

According to the court, distributions by an irrevocable trust before its termination - be they principal or income, discretionary or fixed-interest - to beneficiaries resident in Germany are subject to German gift tax. An exception should apply only for the settlor himself. This view had been taken by several German tax authorities before, but was controversial. With the recent Federal Court ruling there is hardly any room left for a differing reasoning.

The recent ruling did not address thequestion of how this gift taxation relates to income tax imposed on trust distributions. Trust distributions have usually been considered as being taxable under the German Income Tax Act. Therefore, it may be assumed by tax authorities that trust distributions trigger double...

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