Fiscal Domicile

In order to avoid double taxation, the Germany-U.S. Estate and Gift Tax Treaty defines how the fiscal domicile (steuerlicher Wohnsitz) is to be determined for purposes of the Treaty. Where by reason of the provisions of Art. 4 para 1 of the Treaty an individual was domiciled in the U.S. (e.g. because he/she was a U.S. citizen) and Germany (e.g. because he/she is German a tax resident), domicile is determined under the “tie-breaker” rules:

• The individual who has dual domicile will be deemed to be domiciled in the country where he or she has a permanent home (dauerhafter Wohnsitz);
• if he or she has a permanent home in both countries or neither country, in the country where his or her centre of vital interest (Lebensmittelpunkt);
• On the occasion that it cannot be determined where his center of vital interests is the closest, he will be deemed to be domiciled in the country in which he has a habitual abode and if he has habitual abodes in both countries or neither country, he will be deemed to be domiciled in the country of which he is a citizen. See Art. 4 para 2 of the Treaty. 

However, where an individual at his death was

• a citizen of Germany or the U.S., and not also a citizen of the other Contracting State, and
• by reason of the provisions of paragraph 1 domiciled in both Contracting States, and
• by reason of the provisions of paragraph 1 domiciled in the other Contracting State for not more than 10 years, then the fiscal domicile of that individual and of the members of his family forming part of his household and fulfilling the same requirements shall be deemed, notwithstanding the provisions of Art. 4 para 2 of the Treaty, to be in the Contracting State of which they were citizens. See Art. 4 para 3 of the Treaty. 

The German Federal Fiscal Court has ruled on September 20th 2022 (file number: II B 2/22, NV) that Art. 4 para 3 of the Treaty is not applicable to most beneficiaries.