On
The new regulation will be effective for all relocations from
Executive Summary
The German exit taxation (sec. 6 AStG) will be revised as of 2022. In particular, the interest-free, unlimited deferral will be abolished for relocations of EU/EEA citizens within the EU/EEA area. In addition, the personal scope of application and the so-called returnee regulation will be revised.
- General Information on German Exit Tax
When a shareholder moves abroad,
- Personal Applicability of the Exit Tax
Legacy System
According to the current law, the taxpayer must have been subject to unlimited tax liability in
The new law provides for a reduction of the period of unlimited tax liability required before the exit from ten to seven years. This means that taxpayers moving to
- Temporary Abscence (Returnee Provision")
Legacy System
Under current law, the exit tax lapses with retroactive effect if the taxpayer is only temporarily absent (with well documented intention to return at the time of relocation!) and re-establishes unlimited tax liability in
The rules regarding the return of taxpayers will in principle still apply, but the regular period will be extended from five to seven years. An extension by additional five years up to a total of twelve years will also be possible, whereby only the continued intention to return is required; the existence of professional reasons will no longer be necessary. Upon application of the returnee, annual installments will not be levied. On the other hand, the hitherto unlimited return regulation for relocating EU/EEA citizens is to be abolished.
According to the explanatory statement to the law, it will not be necessary in the future to substantiate the intention to return. However, considering the unchanged wording of the provision and the partly contradictory explanatory statement, it seems possible that the tax authorities could continue to demand for the intention to return to be existent at the time of departure. Therefore, it is strongly recommended that in case of an exit, the taxpayer still carefully documents such an intention in the future in order to benefit from the retrospective omission of the exit tax in case of a later return to
If a deferral is applied for under the usage of the returnee provisions, no installments are due for the entire deferral period until the taxpayer returns to
- Revocation of Payment in Installments
In future, any transfer that is not made upon death is to be detrimental to the deferment, regardless of whether the recipient is resident in
Another planned tightening is a regulation according to which in future profit distributions or deposit repayments from the corporation with a volume of at least 25% of the value of the taxpayer's shares will trigger an immediate due date of the tax. This can lead to a (partial) "lock-up" of assets in the company, which should definitely be taken into account when planning to relocate.
- Collateral Security
Legacy System
According to current law, collateral security for the deferred exit tax only has to be pro-vided to the tax office by a taxpayer who is moving to a country outside the EU/EEA.
Due to the legislator's intention to put EU/EEA cases on an equal footing with third-country cases, there will be no longer a distinction between relocations to third countries and EU/EEA countries - to the detriment of taxpayers who wish to move within the EU/EEA. In the future, in general, collateral security for the exit tax has to be provided for all relocations. This will be an impossible obstacle for many taxpayers even if applying for the seven-year installment payment. This is because, according to the tax authorities of at least some federal states, the shares of the corporation subject to the exit tax themselves cannot be accepted as collateral security. If the taxpayer does not have valuable German real estate, federal treasury bonds or similar assets with sufficient value at his disposal, the exit tax could become due immediately, even in the case of relocations of EU/EEA citizens within the EU/EEA.
However, there are good reasons to take the view that tax authorities will have to exercise their discretion in demanding a collateral security ("as a general rule") in accordance with the freedom of capital movement and freedom of establishment in a way that no such security can be demanded within the EU/EEA. This is because the EU Recovery Directive applies in this respect, therefore there should be no risk for the German tax revenue. Nevertheless, in the majority of future cases, this may assumingly only be enforceable with assistance by the Tax Courts.
- Assessment and Outlook
The
From our perspective, it is doubtful whether the new regulations can withstand European law. After all, in its judgment in the Wächtler case (of
In particular, the extensive equalisation of relocations to
Overall, the stricter regulations are to be classified as excessively restrictive. They impose a direct and substantial restriction of Intra-European mobility particularly for shareholders of medium-sized businesses. The freedom of capital movements and the freedom of establishment within the EU and the EEA are significantly more restricted by the planned new regulations than it is the case under the current law. For relocations to Non-EU/EEA-countries (especially also to countries without a free movement agreement (Freizügigkeitsabkommen) with the EU and even to countries without a DTT with
Since the new rules only apply to relocations from
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Dr.
POELLATH
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80331
Tel: (0)89 242400
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E-mail: Monika.Goede@pplaw.com
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