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For persons in Germany with limited tax liability who only transfer so-called domestic assets, the non-taxable threshold for inheritance and gift tax was at a level of only 2,000 euros. As a result inheritance tax is applicable already for low transfer values. By contrast, depending on the family relationship, persons with an unlimited tax liability benefit from a non-taxable threshold of between 20,000 and 500,000 euros every 10 years.
The limited tax liability is present, for example, when none of those involved in the transfer such as in the case of an inheritance neither the bequeather nor the inheritor has his place of residence or place of abode in Germany. In the case of limited tax liability, as opposed to the case of unlimited tax liability, the whole of the world assets are not subject to inheritance tax, but only the assets located in Germany pursuant to § 121 German Valuation Act (BewG) (domestic assets). In Germany this is often real estate which a bequeather living abroad has bequeathed to his inheritors who also live abroad. If, on the other hand, one of those involved has his place of residence in Germany, then the tax liability is unlimited which applies to the complete world assets of the individual.
A mother who resides in the Netherlands gives a piece of real estate in Germany to her daughter who also resides in the Netherlands.
The inheritance of the real estate by the daughter is subject to limited inheritance tax liability. In accordance with German inheritance and gift tax law the daughter is only allowed a personal non taxable threshold of 2,000 euros.
In such a case the European Court of Justice (ECJ) ruled that this constitutes a violation of the free movement of capital as far as the bequeather or the recipient has his place of residence in an EU-member state (ECJ April 22, 2010, C 510/08, Mattner). If one of those involved in the transfer had his place of residence in Germany, the acquisition would be liable to unlimited tax liability and an applicable non-taxable threshold of 400,000 euros so that the inheritance tax burden would be been considerably less.
If the case is in a country outside of the EU, the ECJ came to the same conclusion (ECJ October 17, 2013, C-181/12, Yvon Welte).
Elke Volland
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