German Federal Fiscal Court Ruling on Gift Tax triggered by Distributions from a Foreign Trust

In its decision dated June 25, 2022, file no. II R 31/19 the German Federal Fiscal Court (Bundesfinanzhof) held that distributions from a Foreign pool of assets with the purpose to bind assets (Vermögensmasse ausländischen Rechts, deren Zweck auf die Bindung von Vermögen gerichtet ist) during the existence of such pool of assets can only be subject to German gift tax (Schenkungsteuer) under § 7 (1) no. 1 of the German Inheritance Tax and Gift Act, if the recipient has “rights to the assets and/or income of the trust independently of a distribution decision of the trustee.” 

Substantive excerpts from the the decision

"2 Pursuant to Sec. 7 (1) No. 9 Sentence 1 of the Inheritance Tax Act, what is acquired, inter alia, upon the dissolution of a foundation shall be deemed to be a gift inter vivos. Pursuant to § 7, Subsection 1, No. 9, Sentence 2, ErbStG, the acquisition upon dissolution of a foreign pool of assets,  the purpose of which is to bind assets, as well as the acquisition by intermediate beneficiaries during the existence of the asset pool, are equivalent to this.


bb) An intermediary beneficiary of a foreign foundation within the meaning of Sec. 7 (1) No. 9 Sentence 2 Half-Sentence 2 Inheritance Tax Act is anyone who, irrespective of a specific distribution resolution, has a legal entitlement to the assets tied up in the assets and/or to the income generated by the assets, whether -- according to German legal understanding -- in the form of a right in rem or in the form of claims under the law of obligations. A person who does not have any rights to the estate or claims against the estate is not an intermediate beneficiary (cf. BFH judgment in BFHE 265, 421, BStBl II 2020, 61, para. 35).

cc) The scope of application of Sec. 7 (1) No. 9 Sentence 2 Half-Sentence 2 Inheritance Tax Act extends to distributions from the principal as well as from the income. There is no reason to limit the scope of the law based on a goal-specific interpretation in this respect. The provision is based solely on the acquisition during the existence of the pool of assets. It does not differentiate as to whether the acquisition is made from the assets or the income.

c) These principles developed for foreign foundations apply equally to other assets under foreign law, including Anglo-American trusts. Foreign foundations are merely a sub-category of the asset pools under foreign law referred to in § 7 (1) No. 9 Sentence 2 ErbStG. There is no reason to differentiate between different types of foreign asset pools, especially since "foundations" may also have different legal character under different legal systems."


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.

Do You have any Questions?

We look forward to assisting you. For the sake of simplicity and efficiency, we request that you use our contact form for your inquiry and describe the matter as clearly as possible. In addition, you can include relevant attachments. After submitting your inquiry, we will contact you either by telephone or e-mail within 2 working days. If we can assist, we will suggest a time and date for an initial consultation. Of course, you can also contact this firm or a particular attorney directly to make an appointment for a personal consultation or telephone consultation (find contact details here). Please be advised that no attorney-client relationship is created by sending us an email or filling out this contact form. For information on our fees, please click here.