Chain Gifting (Kettenschenkung)

Chain gifting (Kettenschenkung) is a tax planning strategy in Germany used to maximize tax-free allowances by passing assets through another person (e.g., spouse) rather than directly to the final recipient. 

Example: Father V wants to give his son EUR 800,000. Father V makes a gift of EUR 400,000 to his son free of gift tax using the general tax-free amount. He gives a further EUR 400,000 to his wife E on condition that the money is passed on to S. V believes that the gift to S via E is also tax-free, as the general tax-free amount is available again in the relationship between E and S. 

The Federal Fiscal Court has held that in such cases, the determination of the respective donor and the respective beneficiary must be based on whether the person making the transfer has independent decision-making authority regarding the use of the gifted asset. If a person receives a gift as an intermediary or agent and passes it on in full to a third party in accordance with an obligation, for gift tax purposes, this constitutes a direct gift from the donor to the final recipient. Whether the first recipient may freely dispose of a gifted item or must transfer it to a third party (final recipient) must be determined on a case-by-case basis based on the totality of the objective circumstances, taking into account the contracts entered into, their consistency with one another, and the objectives of the contracting parties as discernible from the contract’s drafting. The obligation to transfer may arise from an express agreement in the gift contract or from the circumstances. However, it is not sufficient that the original owner (donor) knows or agrees that the first recipient will further gift the transferred item. The decisive factor is the lack of discretion on the part of the initial recipient. See Federal Fiscal Court (BFH) judgment of July 18, 2013 – II R 37/11, BStBl 2013 II 934, paras. 13–17.