German Federal Fiscal Court Ruling on Taxation of Distributions from a Foreign Family Foundation and a Foreign Trust

German Federal Fiscal Court Ruling on Taxation of Distributions from a Foreign Family Foundation and a Foreign Trust

In its decision dated July 3, 2019, the German Federal Fiscal Court (Bundesfinanzhof) held that distributions from a foreign family foundation (ausländische Familienstiftung) to an individual which has a fiscal residence in Germany are subject to German gift tax (Schenkungsteuer) under § 7 (1) no. 1 of the German Inheritance Tax and Gift Act, if they obviously exceed the purpose of the foundation as described in its articles of association. Furthermore, the Court opined that distributions from a foreign family pool of assets (Familien-Vermögensmasse ausländischen Rechts) during the existence of such pool of assets can only be subject to German gift tax if the recipient has “rights to the assets and/or income of the trust independently of a distribution decision of the trustee.” The substantive decision states that an "abstract-general right to the distribution" or an "interest in the capital and/or income that cannot easily be withdrawn" may qualify as a  “right” in this meaning. As many trusts are "foreign pool of assets", the decision may have significant implications on the taxation of trusts in Germany and it may result in shielding some (discretionary) trust distributions from German gift tax. 

For further information on the Taxation of Trusts in Germany, please see our articles Taxation of U.S.-Trusts under the German Inheritance and Gift Tax Act and U.S.-Trusts in German-American Estate Planning.

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