Germany: No exit tax resulting from amendment of income tax treaty (fiscal court decision)

Fiscal Court of Münster

No exit tax resulting from amendment of income tax treaty (fiscal court decision)

The Fiscal Court of Münster held (file ref. 13 K 559/19) that amendment of an income tax treaty cannot lead to a taxable disjunction of assets (exit tax).


A German company owned shares in a Spanish S.L. (comparable to a German corporation, or Kapitalgesellschaft) that was a real estate company within the meaning of the applicable income tax treaty, as more than 50% of its assets consisted of real estate located in Spain. Under an amendment to the treaty between Germany and Spain (introduction of Art. 13 (2), effective 1 January 2013), gains on the disposal of shares in a real estate company can now also be taxed in the situs state (Spain), and such tax may be credited in Germany. The country of domicile (Germany) had the sole right to tax under the old treaty. In dispute was whether as a result of the amendment, Germany could impose exit tax on the hidden reserves in the shares of the Spanish S.L.

The court ruled that the mere change in the legal situation cannot lead to an act of taxable disjunction. The potential restriction of Germany's right to tax due to amendment of the treaty cannot be attributed to the taxable entity. Rather, the taxable entity must actively participate in excluding or restricting Germany's right to tax.

An appeal against the Fiscal Court's decision was permitted and is pending before the German Federal Tax Court under file number I R 41/22.

KPMG observation

Comparable scenarios could occur under the income tax treaties with Liechtenstein, Luxembourg, and Australia, which have all been amended in respect of rights to tax capital gains.

The view of the courts on this issue could change due to the Act Implementing the EU Anti-Tax Avoidance Directive in 2021, at least for new cases, because the legislature appears to assume that the ATAD Implementation Act allows imposition of exit tax upon the amendment to or new conclusion of a treaty.

Read a December 2022 report [PDF 394 KB] prepared by the KPMG member firm in Germany 


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