Does the German inheritance tax act violate European Law?

Does the German inheritance tax act violate European Law?

On June 12, 2013, Advocate General Mengozzi delivered his opinion on the matter Yvon Welte v. Finanzamt Velbert (Case C-181/12). The case concerned the estate of a Swiss national and resident comprising of real property located in Germany and certain bank accounts in Germany and Switzerland. The decedent’s wife, who was born in Germany but acquired Swiss nationality and residence upon her marriage to the decedent, was the sole heir of the decedent’s estate. The real property, which represented 62% of the total value of the estate, received a EUR 2.000 deduction while the other components of the estate were not taxed. Should the decedent and/or his wife been residents of a Member State they would have been entitled to an allowance of EUR 500.000 under German domestic law.


In the Mattner case  (6) the European Court of Justice (ECJ) ruled (judgment of 22 April 2010 in case C-510/08) that Articles 56 EC and 58 EC preclude the provision made under Article 16(2) ErbStG to the effect that, for the calculation of gift tax, the allowance to be set against the basis of assessment in the case of a gift of immovable property located in Germany is smaller where the donor and the donee were resident in another Member State on the date of the gift than if at least one of them had been resident in Germany on that date.

However, the present case differs in two respects from the case which gave rise to the judgment in Mattner: (i) on the date of the death, the deceased and Mr Welte both resided, not in a Member State, but in a third country; and (ii) the property that Mr Welte inherited comprised not only the land belonging to the deceased, but also credit balances held in German and Swiss banks. The decision not to grant the full tax-free allowance of EUR 500 000 to Mr Welte was therefore justifiable since only a part of the estate located in Germany was taxed.


The question before the European Court of Justice (ECJ) is whether Articles 56 European Treaty (EC), 57 EC and 58EC should be interpreted as precluding national legislation on inheritance tax under which, in cases where real property within a Member State is acquired through inheritance by a person, that does not reside in the European Community, that person is entitled to a tax-free amount of EUR 2.000, whereas a tax-free amount of EUR 500.000 would apply if, at the time of inheritance, the deceased person or the heir had a permanent residence in a Member State of the EC. Advocate General Mengozzi thinks that § 16 (2) of the German inheritance tax act violates Articles 56 EC, 57 EC and 58EC.


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