Commission refers Germany to the Court of Justice for discriminatory inheritance tax provisions

The European Commission has decided to refer Germany to the EU's Court of Justice because of its legislation on inheritance and gift tax allowances. Under German law, there is a higher tax exemption for inherited German property if the testator or the heir are living in Germany, than if they are both living abroad. As a result, non-residents are taxed much higher on inherited assets located in Germany than German residents are. Such a provision could dissuade citizens living abroad from investing in property located in Germany. The Commission is of the opinion that this provision is discriminatory and constitutes an unjustified restriction on the free movement of capital, as provided for in the Treaties.

The referral to the CJEU is the last step in the infringement procedure.


A tax exemption on inheritances and gifts of up to € 500 000 is granted to German residents (depending on the degree of kinship) under Article 16 of the Law on Inheritance and Gift Tax, whereas the exemption is only € 2 000 if both the testator and the heir are not resident in Germany.

The Court of Justice dealt with the German Law on Inheritance and Gift Tax in its Mattner case (judgment of 22 April 2010 in case C-510/08) and decided, in the context of this case, that this provision was contrary to the free movement of capital.

After the Commission issued a reasoned opinion, Germany amended the Law on Inheritance and Gift Tax and, since December 2011, has granted non-residents the possibility to be treated, upon request, in Germany as tax residents for the purposes of gift and inheritance tax. However, this option does not, in view of the Commission, eliminate the infringement.



1) As a consequence of the ECJ’s ruling, Germany added a new section to § 2 ErBStG. According to § 2 Abs. 3 S. 1 ErbStG a beneficiary can chose that the rules of unlimited taxation apply, if either the decedent or the beneficiary resides in the EU or the EEA. If he chooses the application unlimited taxation of his acquisition, his whole acquisition, irrespective where the assets are situated, will be taxed in Germany. However, he will profit from the full tax allowance.

2) § 2 section 3 of the German inheritance Tax Act is not applicable with respect to non EC-countries (e.g. USA or Canada).

3) The regional tax court of Duesseldorf has asked the ECJ if § 2 section 3 of the German inheritance tax act violates European law.

3) The European Courd has recently held, that § 13 a Abs. 1 und 2 (commercial property) does not violate European law as the free capital movement does not protect non-EC countries.

4) In view of the ECJ`s ruling, we do not exepct that  that the ECJ will held, that § 2 section 3 violates European law.

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