Accrual of Trust Income
While Germany is not a trust jurisdiction and assets in Germany cannot be titled in trust, Germany has enacted special tax laws that apply to such trusts, which qualify as a foreign pool of assets (Vermögensmasse ausländischen Rechts). The income of such trusts is typically considered income of the trust and not its (German resident) beneficiary.
Attribution taxation pursuant to § 15 AStG
The income of a trust that constitutes a foreign family pool of assets (Familien-Vermögensmasse ausländischen Rechts) is attributed to the settlor, if he is subject to unlimited tax liability in Germany and, otherwise, to the current or final beneficiary who are subject to unlimited tax liability, in proportion to their respective shares, § 15 of the Foreign Tax Act (AStG).
It is not necessary for an enforceable legal claim to exist. A “secure legal position” is sufficient (Federal Fiscal Court [BFH] decision of April 25, 2001, II R 14/98).
U.S. income tax paid at the trust level may be credited under the conditions of Section 15(5) AStG. The income taxes levied on the attributable income at the expense of the U.S. trust are credited against the German income tax of the person entitled to receive or claim the income. In applying this credit, the provisions of § 34c(1) of the German Income Tax Act (EStG) apply mutatis mutandis.
Pursuant to § 20(1) AStG, § 15 AStG is not affected by double taxation treaties. Accordingly, Article 1(6) of the U.S.-Germany Income Tax Treaty states that the Treaty does not preclude Germany from taxing a person’s income attributable under § 15 AStG if the person is resident in Germany within the meaning of Article 4 of the Treaty. It is sometimes argued that § 20 AStG excludes the provisions of double taxation treaties (treaty override). However, in the opinion of the tax authorities, § 20 AStG (only) implies that the provisions of a Treaty “do not preclude income attribution" (BMF letter dated December 2, 1994, BStBl I 1995 Special Issue 1, para. 15.1.1.). This must be understood to mean that, a Treaty does not prevent Germany from taxing a resident of Germany under § 20 AStG. However, the trust beneficiary may claim other Treaty benefits, e.g., that the U.S. only may tax income derived from U.S. real estate. In our experience, the tax authorities also view it this way. However, since the Federal Fiscal Court (BFH) has expressly left the question open, there is currently a certain risk.
The beneficiary is required to report the “participation” in the trust pursuant to § 138(2)(3a) AO. For tax years in which an attribution occurs, a declaration for separate and uniform assessment pursuant to Section 18(5) of the AStG must generally be filed. If, in the beneficiary’s opinion, no attribution occurs, a notification may suffice.
Our Services: We generally do not offer representation before the tax authorities regarding income tax. However, we prepare legal opinions and draft the declaration for separate and uniform assessment pursuant to Section 18(1)–(3) of the AStG in cooperation with your tax advisor.
Exclusion of imputed taxation pursuant to Section 15(6) of the AStG
In its ruling of December 3, 2024, IX R 32/22, the Federal Fiscal Court (BFH) decided that § 15(1) and (2) AStG violates the freedom of capital movement in cases involving third countries and that a corresponding application of § 15(6) AStG may be required. According to the BFH’s press release of May 23, 2025, the ruling also applies to the attribution of income from a family estate.
Pursuant to Section 15(6) 6 No. 2 AStG, that information necessary for the assessment of taxes is provided between the Federal Republic of Germany and the state in which the trust has its management or registered office, based on the Mutual Assistance Directive pursuant to § 2 (11) of the EU Mutual Assistance Act or a comparable bilateral or multilateral agreement. A “broad information exchange clause” in a double taxation treaty is sufficient (BMF Dec. 22, 2023 – IV B 5 – S 1340/23/10001 :001 BStBl 2023 I Special Issue 1/2023 p. 2, para. 8.4.1.2, margin note 472). The German-U.S. Double Taxation Agreement (DTA-USA-ESt) contains a “broad information exchange clause” in Art. 26 DTA-USA-ESt, so that these requirements are met in relation to the United States.
Furthermore, pursuant to § 15(6) AStG, it must be demonstrated that the trust assets are legally and factually removed from the control of the persons specified in § 15(2) and (3) AStG. This can generally be done through the trust document and a legal analysis of the trust document.
Taxation of distributions from a U.S. trust pursuant to § 20(1)(9) sentence 2 EStG
Distributions by a U.S. trust that constitutes an “asset pool” within the meaning of § 1a KStG to beneficiaries in Germany may also be taxable under § 20(1)(9) sentence 2 EStG (FG Münster, judgment of March 23, 2023 - 1 K 2478/21 E, see also for foreign family foundations: Federal Fiscal Court (BFH), judgment of October 1, 2024, VIII R 25/21), if the income underlying the distributions has not already been attributed under § 15(1) of the Foreign Tax Act (AStG) (see § 20(1)(9), sentence 2, EStG).
It has not yet been conclusively clarified how the income is to be determined in this case. In the opinion of the Münster Fiscal Court, the value of the total amount distributed (upon dissolution) should, in principle, be taken into account—regardless of whether it consists of (accumulated) income or the trust’s principal assets, and regardless of the nature of the distributed assets (cash or other items); According to this view, only what can be proven to have been transferred to the trust (initial assets) may be deducted. The burden of proof in this regard is likely to fall on the taxpayer. In contrast, the Federal Fiscal Court (BFH) (judgment of October 1, 2024, VIII R 25/21) ruled that, in the basic case under Section 20(1)(9), first sentence, first clause of the Income Tax Act (EStG), the payment must constitute a distribution of the generated surplus, so that the burden of proof likely falls on the tax office.
Taxation of the distribution may lead to disadvantageous taxation (compared to the direct receipt of income). Thus, the Münster Fiscal Court ruled that, in the case of a distribution of securities, the grandfather clause for securities acquired before January 1, 2009 (Section 52(28), sentences 11 et seq. EStG) does not apply when taxation is based on § 20(1)(9) EStG. Based on this reasoning, a distribution of U.S. real estate held privately for more than 10 years is likely also subject to taxation under § 20(1)(9) EStG, even though it would be tax-exempt if sold by the taxpayer himself as a private sale, and income from the sale of U.S. real estate may be taxed only by the United States under the German-U.S. Double Taxation Agreement (DTA-USA-ESt).
Since, to the extent that the income underlying the distributions has already been attributed under Section 15(1) of the Foreign Tax Credit Act (AStG), no taxation occurs under Section 20(1)(9), second sentence, of the Income Tax Act (EStG) upon distribution, the attribution taxation will therefore often be advantageous. In our view, in this case, gains from the sale of securities acquired before January 1, 2009, are tax-exempt, and privately held real estate may be sold after the 10-year period has expired without the capital gain being subject to taxation in Germany. Finally, in our opinion, the benefits of the DTA may be claimed. Attribution taxation may also have the advantage of facilitating the offsetting of German tax against U.S. tax or vice versa.
Recurring distributions
Distributions from a trust to beneficiaries in Germany may also be taxable under Section 22(1)(2)(a) of the Income Tax Act (EStG) if the relevant conditions are met. However, Section 15(11) of the Foreign Tax Act (AStG) must also be observed in this regard.
Corporation Income Tax
Pursuant to § 1(1)(5) of the German Corporation Income Tax Act (KStG), a "foreign pool of assets” that has its place of effective management or registered office in Germany is subject to German corporation income tax. In particular, the place of effective management of a trust will be considered to be in Germany if the sole trustee has his (sole) Treaty residence in Germany.
