Double taxation of an Estate's income - AStG

[sumguy 108]

In many countries outside of Germany, the estate of a deceased person will file its own income tax return. If the estate has income, e.g. from dividends or gains from sales of investments, and it doesn't distribute it to the beneficiaries, it will pay income tax itself. Does anyone know if that income will also be attributed and taxed to German-resident beneficiaries? If so, is there any way they can get a tax credit for the tax that the estate paid?

 

In my case the estate is in Canada, but it's a general question. I've been told that under §15 AStG an estate in common law countries is treated as a "family foundation" if the majority of beneficiaries are family members, and anyone who is named in the will is "entitled to distributions". That means that any income that's not distributed for whatever reason, which the estate pays income or gains tax on, will be attributed and taxable anyway to the German beneficiary, in the year it's earned, in proportion to their share in the estate, even though they don't receive it. Will this result in double taxation, both the estate and the beneficiary? I can't find anything about tax treaties preventing this.

 

 

[HEM 11,070]

4 hours ago, sumguy said:

 I can't find anything about tax treaties preventing this.

 

I believe that the venerable Panda wrote that there is no DTA concerning inheritence taxation (at least between DE & UK & thus probably elsewhere).

[BethAnnBitt 2,906]

6 hours ago, HEM said:

I believe that the venerable Panda wrote that there is no DTA concerning inheritence taxation (at least between DE & UK & thus probably elsewhere).

My country has one.  The OP needs to dig more, or find a reputable tax advisor, regarding his situation.

https://www.germany.info/us-en/service/09-Taxes/taxes-estates/954266?view=

[sumguy 108]

18 hours ago, HEM said:

 

I believe that the venerable Panda wrote that there is no DTA concerning inheritence taxation (at least between DE & UK & thus probably elsewhere).

12 hours ago, BethAnnBitt said:

My country has one.  The OP needs to dig more, or find a reputable tax advisor, regarding his situation.

https://www.germany.info/us-en/service/09-Taxes/taxes-estates/954266?view=

 

Thanks both. But the question is about income tax / capital gains tax, not inheritance or estate tax, which is a very different issue. Canada has no inheritance tax treaty, like the UK and unlike the US. But income/gains tax is covered by the DTA. It appears that AStG has a treaty override though. I've actually done a lot of digging, and I was also told by a reputable lawyer (though not a Steuerberater) that there will be double taxation, despite the treaty. That's major bad news for me, so I'm looking for confirmations or second opinions...

 

 

 

[alpenstar 3]

10 hours ago, sumguy said:

 

I've actually done a lot of digging, and I was also told by a reputable lawyer (though not a Steuerberater) that there will be double taxation, despite the treaty. That's major bad news for me, so I'm looking for confirmations or second opinions...

 

 

 

 

Please do share more. If I read right, there is double taxation on estate income/gains, correct? Is this with respect to Canada, UK, or USA? I wouldn't put my faith in the venerable DTA tax gods (not Steuerberater-s) who often times deliver incorrect basic advice with zero empathy while taking thousands of euro for nothing.

[silty1 3,597]

On 20.12.2022, 23:25:08, sumguy said:

In my case the estate is in Canada, but it's a general question. I've been told that under §15 AStG an estate in common law countries is treated as a "family foundation" if the majority of beneficiaries are family members, and anyone who is named in the will is "entitled to distributions". That means that any income that's not distributed for whatever reason, which the estate pays income or gains tax on, will be attributed and taxable anyway to the German beneficiary, in the year it's earned, in proportion to their share in the estate, even though they don't receive it. Will this result in double taxation, both the estate and the beneficiary? I can't find anything about tax treaties preventing this.

 

Well sumguy, if you have seen my PM and want to persue this, I can add:

After sticking the 15AStG link in German into my old friend deepl.com, out comes first off:

1) The assets and income of a family foundation which has its management and registered office outside the scope of this Act (foreign family foundation) shall be attributed to the founder if he is subject to unlimited tax liability, otherwise to the persons subject to unlimited tax liability who are entitled to receive or accrue tax in proportion to their share. This shall not apply to inheritance tax.

 

The bold is mine.

 

Assuming you are living in DE and inheriting from a Canadian estate, can you give an example of capital gains made within an estate that will be subject to taxation here in Germany?  I understand that RevCan in some circumstances can tax an estate for capital gains made on the sale of a property, for example, but how can Germany also tax that capital gain?   Can you give any more details on what your reputable lawyer said?  Was it a private consultation or something you read in an article on the net?  

[GaryC 365]

I don't know the answer but as I understand sumguy, we are not taking about Inheritance Tax.  

 

When a person dies, their estate is administered by persons appointed as their personal representative or Executors.  They must call in all assets and settle liabilities, pay any Inheritance Tax and ultimately distribute the residue of the estate to the beneficiaries. 

 

If, during the period of administration income or capital gains arise because of the activities of those administering the estate (interest on bank deposits, capital gains on the sale of assets and so on) then a tax liability arises on the personal representatives and they must submit a tax return and pay those taxes.  If I understand the OP, it is this situation he is asking about.

 

What I don't understand is by §15 is applicable, i.e. why the estate of a deceased person falls within the meaning of a "Familienstiftung", but leave others to explain why...

[silty1 3,597]

OK, thank you for presenting that so clearly.  

 

I suppose what will happen is the estate will get taxed by Canada - including any capital gains tax under the conditions you describe -  then German residency of the beneficiary will get flagged and the capital gains details automatically passed on to the Finanzamt.  Yeah, double taxation indeed.  

 

 

[PandaMunich 16,568]

 

On 20/12/2022, 23:25:08, sumguy said:

If the estate has income, e.g. from dividends or gains from sales of investments, and it doesn't distribute it to the beneficiaries, it will pay income tax itself. Does anyone know if that income will also be attributed and taxed to German-resident beneficiaries? If so, is there any way they can get a tax credit for the tax that the estate paid?

 

In my case the estate is in Canada, but it's a general question. I've been told that under §15 AStG an estate in common law countries is treated as a "family foundation" if the majority of beneficiaries are family members, and anyone who is named in the will is "entitled to distributions". That means that any income that's not distributed for whatever reason, which the estate pays income or gains tax on, will be attributed and taxable anyway to the German beneficiary, in the year it's earned, in proportion to their share in the estate, even though they don't receive it. Will this result in double taxation, both the estate and the beneficiary? I can't find anything about tax treaties preventing this.

Yes, because if all assets do not get distributed as soon as possible after the death, what you are describing is a trust, i.e. a Stiftung which keeps income-generating assets for years on end.

To avoid people trying to avoid German taxes by not simply distributing all assets held in foreign trusts to the heirs, the state created §15 AStG, i.e. if the heirs live in Germany, those non-distributed assets are anyway assigned to the heirs and they therefore have to tax the income generated by the undistributed assets.

 

In summary:

Germany does not recognise trusts and will tax everything as if you had inherited your share of the estate immediately on the date of death of the person who left you this inheritance. 

And yes, if your home country also makes the trust pay income tax on types of income for which the double taxation agreement regarding income tax between Germany and your home country (DTA) would have assigned the taxation rights to Germany if these income-generating assets had been distributed to you, e.g. capital income, there will be double taxation. The trust will pay your home country income tax on this capital income and then you will have to pay German income tax on it, no tax credit possible.

 

If were are talking about rental income generated by real estate in your home country, according to the DTA, that would also have anyway been taxed by your home country even if that real estate had been distributed to you, so on rental income, no double taxation will take place. But please do not forget that you have to declare non-EU/EEA rental income in Anlage AUS of your German income tax return, since it is income subject to Progressionsvorbehalt.

To see the effect of Progressionsvorbehalt, please scroll down to the example in here.

 

Please also read: https://blog.handelsblatt.com/steuerboard/2022/04/13/aktuelle-bfh-rechtsprechung-zu-trusts-von-in-transparenz-und-zwischenberechtigung/

[Straightpoop 676]

On 23.12.2022, 11:15:21, PandaMunich said:

The trust will pay your home country income tax on this capital income and then you will have to pay German income tax on it, no tax credit possible.

 

§ 15 AStG (5) seems to specifically make taxes paid on trust income to the foreign country creditable against the tax imposed by §15 (1):

 

(5) ¹Auf die Einkommen- oder Körperschaftsteuer des Stifters oder der bezugs- oder anfallsberechtigten Person werden die Steuern vom Einkommen angerechnet, die zu Lasten der ausländischen Stiftung auf die zuzurechnenden Einkünfte erhoben worden sind. ²Bei der Anrechnung sind die Vorschriften des § 34c Absatz 1 des Einkommensteuergesetzes und des § 26 Absatz 1 und 2 Satz 1 des Körperschaftsteuergesetzes entsprechend anzuwenden.

[PandaMunich 16,568]

18 minutes ago, Straightpoop said:

§ 15 AStG (5) seems to specifically make taxes paid on trust income to the foreign country creditable against the tax imposed by §15 (1):

 

(5) ¹Auf die Einkommen- oder Körperschaftsteuer des Stifters oder der bezugs- oder anfallsberechtigten Person werden die Steuern vom Einkommen angerechnet, die zu Lasten der ausländischen Stiftung auf die zuzurechnenden Einkünfte erhoben worden sind. ²Bei der Anrechnung sind die Vorschriften des § 34c Absatz 1 des Einkommensteuergesetzes und des § 26 Absatz 1 und 2 Satz 1 des Körperschaftsteuergesetzes entsprechend anzuwenden.

The problem is that no tax credit is given for capital income (interest, dividends, profit from selling stocks/funds/bonds/options and so on), see the last part of sentence 1 in §34c (1) EStG: https://dejure.org/gesetze/EStG/34c.html

• (1) 1In the case of unlimited taxpayers whose foreign income is subject to a tax corresponding to German income tax in the State from which the income originates, the foreign tax assessed and paid and reduced by any claim for reduction that has arisen shall be credited against the German income tax attributable to the income from that State; this shall not apply to income from capital assets to which section 32d, paragraphs 1 and 3 to 6 apply.

[Straightpoop 676]

59 minutes ago, PandaMunich said:

The problem is that no tax credit is given for capital income (interest, dividends, profit from selling stocks/funds/bonds/options and so on), see the last part of sentence 1 in §34c (1) EStG: https://dejure.org/gesetze/EStG/34c.html

• (1) 1In the case of unlimited taxpayers whose foreign income is subject to a tax corresponding to German income tax in the State from which the income originates, the foreign tax assessed and paid and reduced by any claim for reduction that has arisen shall be credited against the German income tax attributable to the income from that State; this shall not apply to income from capital assets to which section 32d, paragraphs 1 and 3 to 6 apply.

 

Perhaps not specifically under the authority of § 15 (5) AStg but, arguably, that provision does not exclude a foreign tax credit under § 32d Abs. 1 EStG which appears to provide authority for a foreign tax credit independent of § 34c (1):

 

(1) ¹Die Einkommensteuer für Einkünfte aus Kapitalvermögen, die nicht unter § 20 Absatz 8 fallen, beträgt 25 Prozent. ²Die Steuer nach Satz 1 vermindert sich um die nach Maßgabe des Absatzes 5 anrechenbaren ausländischen Steuern.

 

Read in conjunction with § 15 Abs. 8 AStG:

 

(8) ¹Die nach Absatz 1 dem Stifter oder der bezugs- oder anfallsberechtigten Person zuzurechnenden Einkünfte gehören bei Personen, die ihre Einkünfte nicht nach dem Körperschaftsteuergesetz ermitteln, zu den Einkünften im Sinne des § 20 Absatz 1 Nummer 9 des Einkommensteuergesetzes

 

I see nothing in § 32d that excludes income from § 20 Abs. 1 Nr. 9 from enjoying the foreign tax credit provided for under § 32d Abs. 1 S.2.

 

And, now that I think about it, I see now why the AStG makes a reference to the credit allowed under § 34c since absent such a provision amounts that are NOT income from capital assets but which are lumped together by § 15 AStG and taxed under §20 Abs. 1 Nr. 9 as if they were might otherwise not be eligible for the foreign tax credit afforded by § 32d Abs. 1 S. 1.

 

In other words, the reference to the availability of the foreign tax credit under § 34c supplements rather than excludes the foreign tax credit available under § 32d Abs. 1.

 

Last but not least, there are the various provisions of any existing DBA to avoid just this kind of (possible) double taxation.

 

 

[PandaMunich 16,568]

1 hour ago, Straightpoop said:

Perhaps not specifically under the authority of § 15 (5) AStg but, arguably, that provision does not exclude a foreign tax credit under § 32d Abs. 1 EStG which appears to provide authority for a foreign tax credit independent of § 34c (1):

 

(1) ¹Die Einkommensteuer für Einkünfte aus Kapitalvermögen, die nicht unter § 20 Absatz 8 fallen, beträgt 25 Prozent. ²Die Steuer nach Satz 1 vermindert sich um die nach Maßgabe des Absatzes 5 anrechenbaren ausländischen Steuern.

"Arguably" is nice ;-)

The Finanzamt will not give you a tax credit for capital income for § 15 AStG cases, since they say that if the lawyers at the BMF (German Ministry of Finance) who drafted this law had wanted to do a tax credit for capital income, they would have explicitly mentioned the separate tax credit clause for capital income, §32d (5) EStG, in §15 AStG.

Which they didn't, they only mentioned §34 (1) EStG, which explicitly excludes capital income.

 

If we look into the commentary "Flick/Wassermeyer/Baumhoff/Schönfeld, Außensteuerrecht, Kommentar, AStG § 15 Steuerpflicht von Stiftern, Bezugsberechtigten und Anfallsberechtigten (Otto Schmidt)", we see: 

• Rz. 226 Verhältnis von § 34c Abs. 1 EStG zu § 32d Abs. 1 Satz 2 und Abs. 5. Der Verweis auf § 34c Abs. 1 EStG überrascht insofern, als die überwiegende Zahl der Zurechnungsadressaten natürliche Personen sind, denen Einkünfte im Privatvermögen nach § 20 Abs. 1 Nr. 9 EStG zugerechnet werden (vgl. Rz. 350). In Bezug auf originär-eigene Einkünfte aus Kapitalvermögen erfolgt bei diesen Zurechnungsadressaten die Anrechnung ausländischer Steuer nach § 32d Abs. 1 Satz 2, Abs. 5 EStG. Umgekehrt zählen auch die zugerechneten Einkünfte gem. Abs. 8 Satz 1 (bei allen Zurechnungsadressaten, vgl. Rz. 387) zu den Einkünften aus Kapitalvermögen, soweit nicht § 20 Abs. 8 bzw. § 8 Abs. 2 KStG (i.V.m. Abs. 8 Satz 2 Halbs. 1 bzw. Satz 3 Halbs. 1) etwas anderes bestimmen. Auf Einkünfte aus Kapitalvermögen ist § 34c Abs. 1 EStG (ausweislich von Satz 1 Halbs. 2) ausdrücklich von der Anwendung zugunsten von § 32d Abs. 1, 5 und 6 EStG ausgeschlossen. Und dennoch: Für eine Anwendung der Anrechnungsvorschrift in § 32d EStG (im Rahmen des § 15) fehlt es an einer gesetzlichen Grundlage, weil es um die Anrechnung von Steuern geht, die nicht zu Lasten des Steuerpflichtigen, sondern der Stiftung erhoben wurden. Dies gilt selbst dort, wo § 32d EStG über Abs. 8 Satz 2 Halbs. 2 unmittelbar anwendbar ist (vgl. Rz. 374). Insoweit ist der Verweis auf Abs. 5 Satz 2 auf § 34c Abs. 1 EStG die speziellere Norm, welche dem Ausschluss in § 34c Abs. 1 Satz 1 Halbs. 2 EStG vorgeht.

 

There was a BFH case where this question could have been addressed, the case mentioned in this Haufe article about § 15 AStG and (the not given) tax credit for foreign tax on capital income: https://www.haufe.de/finance/haufe-finance-office-premium/internationales-steuerrecht-auslaendische-kapitalertraege-8-abgeltungssteuer-und-hinzurechnung-auslaendischer-kapitalertraege-nach-15-astg_idesk_PI20354_HI5553593.html

But in the BFH ruling of 03.12.2019 for the case Az. VIII R 23/16 mentioned in that Haufe article, the BFH did not pronounce itself on whether a tax credit for capital income in the case of §15 AStG is possible or not: https://www.bundesfinanzhof.de/de/entscheidung/entscheidungen-online/detail/STRE202050140/

 

--> the Finanzamt will not budge unless the BFH actually rules on this in a taxpayer's favour.

 

1 hour ago, Straightpoop said:

And, last but not least, there are the various provisions of any existing DBA to avoid just this kind of (possible) double taxation.

Now let's look whether the double taxation agreement (DTA) helps.

 

A DTA only provides tax credit clauses for limited cases, for dividends paid out by that country's companies, usually up to 15% and sometimes also for interest.

 

In the DTA Germany/Canada, that's up to 15% source tax on dividends paid by Canadian companies and up to 10% Canadian source tax on Canadian interest: https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Internationales_Steuerrecht/Staatenbezogene_Informationen/Laender_A_Z/Kanada/2002-03-27-Kanada-Abkommen-DBA-Gesetz.pdf?__blob=publicationFile&v=3

 

And now we come to the problems with trying to get a tax credit because of a DTA.

First off, the entity paying that Canadian source tax, "trust ABC, Canada" will not be the taxpayer "John Smith, Germany", so the name and address will not match.

And even if that were not a problem, what if that trust had other forms of income, e.g. profit from selling stocks, where Canadian source tax isn't foreseen by the DTA and therefore no "tax credit according to the DTA" is possible?

Or if that trust ABC had paid more than 10% Canadian income tax on its Canadian interest?

[Straightpoop 676]

@PandaMunich

 

Thanks for the explanation.

 

If I may summarize:

 

§15 imputes foreign trust income to a German taxpayer even if undistributed and even if the foreign trust is an intransparent, i.e. taxable entity in that foreign country.

 

§15 then declares that all of that imputed income - regardless of its actual character - should be taxable as if it was from capital asset (i.e. Abgeltungsteuer) under §32d.

 

§ 15 then says that the portion of the imputed income that it has mischaracterized in order to make it taxable under § 32d will be entitled to a credit under § 34c but that the portion that actually was from capital assets will not be entitled to the §34c foreign tax credit.

 

The Finanzamt (and at least one commentator) then argues that because even though the imputed income is in fact capital in nature and is specifically included as an item of capital income taxable under § 32d - even though earned by a foreign entity and not actually received by the taxpayer - the foreign tax credit otherwise available under § 32d to specifically this type of income is not - contrary to the plain language of the statute - available to this type of income because the foreign income tax paid by the foreign entity on that income  which is not actually received but imputed to the taxpayer for purposes of imposing German tax under § 32d is not really paid by the taxpayer but rather by some intransparent foreign entity.

 

In other words the foreign entity is transparent for §32d tax purposes but not for §32d credit purposes - unless it was income that was mischaracterized as §32d income in the first place; and no treaty relief is available because we have to respect the intransparency of the foreign entity.

 

Makes perfectly good sense to me . . . . 

 

Either that or I picked a bad day to go off my medication.

 

Merry Christmas, Panda.

 

 

 

[PandaMunich 16,568]

3 hours ago, Straightpoop said:

In other words the foreign entity is transparent for §32d tax purposes but not for §32d credit purposes - unless it was income that was mischaracterized as §32d income in the first place; and no treaty relief is available because we have to respect the intransparency of the foreign entity.

Yes, that's it.

 

3 hours ago, Straightpoop said:

Makes perfectly good sense to me . . . . 

Ah, you just need to find your inner Finanzbeamter and switch on your "profiskalisches Denken" (= the Finanzamt always acts in such a manner that the tax burden is maximised).

It will make sense then ;-)

 

3 hours ago, Straightpoop said:

Merry Christmas, Panda.

Merry Christmas to you, too! 

 

And a Happy New Year 2023! 

[sumguy 108]

Hey everyone, hope you had a nice holiday (or are still having one!), and thanks for the responses. Panda, that corresponds to what the lawyer basically told me, and what I've read about foreign trusts, though your explanation and references are much more thorough, I appreciate it!

 

I've seen §15 AStG discussed in many online sources and a few books, but always only in the context of an actual foreign family foundation or trust. I'm surprised that I'm not able to find any direct mention that it would apply to the ordinary estate that arises in most common-law countries when anyone dies. That would seem like the most frequent place it would be encountered, with regard to those countries. An estate is not a trust or foundation, in the sense that its purpose is to distribute the assets to the beneficiaries as soon as possible, not to hold them for a long term. But it's common that it can take a couple of years to get the paperwork done and wind up the estate. In the meantime, interest and dividends may accumulate, or assets get sold.

 

I guess the lesson is to have the estate distribute any income in the year it's earned, if possible. I will also look into whether the estate can attribute income to a beneficiary, even if it's not distributed, and deduct that so that it doesn't pay tax, but that's not a German tax question. However, it's also common that estates have to sell assets in order to pay tax bills, so that may be difficult. Especially in Canada, where the estate pays income tax on RRSP/RRIF retirement plans (like a US IRA) that are deemed to be cashed in at the time of death, and, instead of an inheritance/estate tax, capital gains tax on all property, which is deemed to be sold and repurchased at the time of death. As far as I can tell, Germany doesn't give tax credits for these either. It leads to some heavy double and even triple taxation.

 

On 2022-12-23, 3:43:07, GaryC said:

What I don't understand is by §15 is applicable, i.e. why the estate of a deceased person falls within the meaning of a "Familienstiftung", but leave others to explain why...

 

The relevant paragraphs are:

(2) Familienstiftungen sind Stiftungen, bei denen der Stifter, seine Angehörigen und deren Abkömmlinge zu mehr als der Hälfte bezugsberechtigt oder anfallsberechtigt sind.

(4) Den Stiftungen stehen sonstige Zweckvermögen, Vermögensmassen und rechtsfähige oder nichtrechtsfähige Personenvereinigungen gleich.

In a translation here:

(2) Family foundations are foundations where the founder, his or her relatives and their descendants are entitled to more than half of the benefits or remainder.

(4) Other special-purpose funds, estates, and associations with or without legal capacity are treated as equivalent to foundations.

 

I think it has to do with the concept of Typenvergleich, where foreign legal structures are shoehorned into the closest-matching German structure, regardless of the tax treatment or legal-person status of them in the foreign country.

[PandaMunich 16,568]

8 hours ago, sumguy said:

But it's common that it can take a couple of years to get the paperwork done and wind up the estate. In the meantime, interest and dividends may accumulate, or assets get sold.

 

I think it has to do with the concept of Typenvergleich, where foreign legal structures are shoehorned into the closest-matching German structure, regardless of the tax treatment or legal-person status of them in the foreign country.

And here we have the problem.

 

If your Canadian estate gets to keep income, it is not an Erbengemeinschaft (community of heirs).

An Erbengemeinschaft is transparent, which means that it does not get to keep any income (= no accumulation of income) but its income gets allocated to all its members, who then tax it in their individual tax returns, just like in a partnership.

 

Under German law, an Erbengemeinschaft is created when heirs inherit something jointly and the distribution of the inherited assets does not happen with 6 months of the date of death.

If the assets get distributed within 6 months, German tax law "pretends" that the assets and their income had been the individual heirs' property retroactively, from the date of death, and no separate additional Feststellungserklärung (= tax return in which the income is declared and split up, i.e. allocated to the heirs, who then tax it) is necessary: https://esth-bundesfinanzministerium-de.translate.goog/esth/2021/C-Anhaenge/Anhang-13/I/anhang-13-I.html?_x_tr_sl=de&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp

 

Please also read: https://martin--stb-de.translate.goog/erbengemeinschaft-und-einkommensteuer/?_x_tr_sl=de&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp

 

Which means that yes, they since it is not an Erbengemeinschaft, they then look for the most similar entity under German law and that is the Stiftung (trust).

[Straightpoop 676]

While not mentioned in § 15 of the AStG, the distinction - and possibly different tax treatment - between a foreign estate or trust that is simply taking a long time to wind up and a foreign estate/trust that is designed for continued existence (either indefinitely or for a term of years or until some future event) I believe can be found in the language added to § 3 Abs. 2 Nr. 1 and § 7 Abs. 1 Nr. 9 of the ErbStG back in 20xx(?):  ..."Vermögensmasse ausländischen Rechts, deren Zweck auf die Bindung von Vermögen gerichtet ist". . .,

 

In other words, a foreign estate/trust will be treated as fully transparent for inheritance/gift tax purposes if it is not for the purpose of binding assets for some - statutorily unspecified - length of time that would bring it within the definition quoted above.

 

§15 AStG refers only to a "Vermögensmasse" without the qualification of the language used in the ErbStG. But, since all the other entities it refers to all have in common the element of permanency, it would seem likely that § 15 AStG will also adopt and apply that criterion to foreign "Vermögensmasse". 

 

I think there is a strong argument that unless the foreign "Stiftung" (i.e. trust or estate) is designed for some (statutorily unspecified) degree of permanency as described in § 3 and § 7 of the ErbStG, there can be no "Berechtigte" within the definition of § 15 AStG to whom income can be imputed. Most importantly the public policy underlying § 15 AStG: the discouragement of long-term tax deferral through family-owned/controlled foreign estates/trust and other structures has no application where the time of deferral - if any - is acceptably brief.

 

 

 

 

[PandaMunich 16,568]

3 hours ago, Straightpoop said:

I think there is a strong argument that unless the foreign "Stiftung" (i.e. trust or estate) is designed for some (statutorily unspecified) degree of permanency as described in § 3 and § 7 of the ErbStG, there can be no "Berechtigte" within the definition of § 15 AStG to whom income can be imputed. Most importantly the public policy underlying § 15 AStG: the discouragement of long-term tax deferral through family-owned/controlled foreign estates/trust and other structures has no application where the time of deferral - if any - is acceptably brief.

Sorry, but I don't agree.

 

First off, inheritance tax law (ErbStG) and income tax law regarding cases with international context (Außensteuergesetz = Gesetz über die Besteuerung bei Auslandsbeziehungen) are completely disjunct.

 

Just because a phrase is the same in both, doesn't mean that it is defined the same way.

And you don't even have that same phrase in both these laws:

• in §15 AStG: "Vermögensmasse" and "die Geschäftsleitung und Sitz außerhalb des Geltungsbereichs dieses Gesetzes hat"
  = "An entity that contains assets and which has its management and registered office outside Germany"
   
• in §3 and §7 ErbStG: "Vermögensmasse ausländischen Rechts, deren Zweck auf die Bindung von Vermögen gerichtet ist;"
  = "An entity that contains assets and that was established under non-German law and whose purpose is to bind assets;"

 

If you go strictly by the text of the law (yes, I am aware that lawyers love their different ways of interpreting of the law, but the Finanzamt sticks to the first way, of simply going what is written in the law, i.e. by the wording of the law), the fact that that extra part "deren Zweck auf die Bindung von Vermögen gerichtet ist" is missing in §15 AStG means that any foreign entity that benefits family members, no matter whether it does or does not give these family members the power to force the distribution of these assets/income to them, should be regarded as an "ausländische Familienstiftung" (= "foreign trust").

 

I did a quick search of the AStG-Kommentar for the word "Vermögensbindung" (= that the family members can't get at these assets and therefore at the income, but instead the trusts owns the assets and has the power over its income distribution) and the only place I found it was in the Randziffern regarding §15 (6) AStG, which is about the exception for EU/EEA trusts.

That is the only part of §15 AStG that mentions Vermögensbindung, see §15 (6) Nr. 1 AStG: https://www.gesetze-im-internet.de/astg/__15.html

• das Stiftungsvermögen der Verfügungsmacht der in den Absätzen 2 und 3 genannten Personen rechtlich und tatsächlich entzogen ist
  = "the foundation assets are legally and actually withdrawn from the power of disposal of the persons named in paragraphs 2 and 3"

 

I also did a quick search for the same word (just separated into its components) "Bindung von Vermögen" in the sections of the ErbStG-Kommentar regarding § 3 Abs. 2 Nr. 1 and § 7 Abs. 1 Nr. 9 ErbStG.

Here are the search results. Enjoy 

• Rz. 535
  Nach § 3 Abs. 2 Nr. 1 S. 2 ErbStG steht dem Übergang von Vermögen auf eine vom Erblasser
  angeordnete Stiftung die vom Erblasser angeordnete Bildung oder Ausstattung einer
  Vermögensmasse ausländischen Rechts, deren Zweck auf die Bindung von Vermögen gerichtet ist,
  gleich. Besteuert werden soll damit namentlich die Bildung oder Ausstattung eines ausländischen
  Trusts. Durch die Regelung wird ungeachtet des Umstands, dass die Vermögensmasse nach dem
  jeweiligen nationalen Recht und damit auch nach IPR (Internationalem Privatrecht) nicht rechtsfähig ist, für Zwecke des deutschen
  Erbschaftsteuerrechts ein Steuerrechtssubjekt fingiert (Rz. 63, 73). Aus der erbschaftsteuerrechtlichen
  Existenz eines wirksam errichteten Trusts folgt allerdings nicht zwingend, dass Zuwendungen an
  diesen erbschaftsteuerrechtlich auch anerkannt werden.[30] Vielmehr ist eine endgültige
  Vermögensübertragung notwendig. Ansonsten handelt es sich um ein bloßes Treuhandverhältnis
  (Rz. 63, 73 f.). Liegt eine erbschaftsteuerrechtlich anzuerkennende Vermögensübertragung auf den
  Trust vor, besteht eine unbeschränkte Steuerpflicht, wenn der Erblasser zum Zeitpunkt der Errichtung
  Inländer gewesen ist[31], ansonsten eine beschränkte Steuerpflicht, soweit Inlandsvermögen
  übertragen wird.[32] Die Sonderregelung für Familienstiftungen findet keine Anwendung, weil der
  Trust nur im Ausland errichtet werden kann. Insofern unterliegt er stets der Besteuerung nach
  Steuerklasse III.
  
  [30] BFH v. 28.6.2007, II R 21/05, BFH/NV 2007, 1775, BStBl II 2007, 669 zum Schenkungsteuerrecht.
  [31] § 2 Abs. 1 Nr. 1 ErbStG.
  [32] § 2 Abs. 1 Nr. 3 ErbStG.
  
   
• Rz. 470
  Nach § 7 Abs. 1 Nr. 9 S. 2 Alt. 1 ErbStG ist der Erwerb bei Auflösung einer Vermögensmasse
  ausländischen Rechts steuerpflichtig. Der Trust muss auf die "Bindung von Vermögen" gerichtet sein,
  was etwa bei einem revocable Trust wegen der Widerrufsmöglichkeit bereits zweifelhaft ist.[28] Zum
  steuerpflichtigen Erwerb gehören neben der Grundausstattung auch spätere Vermögenszuführungen
  des Trust-Errichters (Settlors) und zwischenzeitlich erwirtschaftetes Vermögen. Die Steuerklasse
  richtet sich nach dem Verhältnis des begünstigten Anfallberechtigten zum Trust-Errichter (§ 15 Abs. 2
  S. 2 ErbStG). Die persönliche Steuerpflicht setzt voraus, dass der Begünstigte unbeschränkt
  steuerpflichtig ist oder Inlandsvermögen i. S. d. § 2 Abs. 1 Nr. 3 ErbStG übertragen wird. Der Erwerb
  bei Auflösung ist in dem Moment ausgeführt, in dem das gebundene Vermögen zivilrechtlich wirksam
  auf den Anfallsberechtigten übergeht. Grundlage zur Bestimmung des Zeitpunkts ist die dafür
  maßgebende und nach den Regeln des IPR zu ermittelnde Rechtsordnung.[29]
  
  [28] Rz. 442; vgl. Habammer, DStR 2002,425.
  [29] BFH v. 25.6.2021, II 40/18, ZEV 2022, 240.
  
   
• 4 Trust
  Normenkette: ErbStG § 26
  Rz. 6
  § 7 Abs. 1 Nr. 9 S. 2 ErbStG stellt die Auflösung einer Vermögensmasse ausländischen Rechts (Trust)
  sowie den Erwerb durch Zwischenberechtigte während des Bestehens der Vermögensmasse der
  Auflösung einer Stiftung bzw. eines Vereins, dessen Zweck auf die Bindung von Vermögen gerichtet
  ist, gleich.[1] Gleichwohl ist § 26 ErbStG auf die Auflösung eines Trusts oder den Erwerb durch
  Zwischenberechtigte nicht anwendbar. Angerechnet werden kann nach dem klaren Wortlaut des
  Gesetzes nur die Ersatzerbschaftsteuer; § 26 ErbStG nennt ausdrücklich nur § 15 Abs. 2 S. 3 ErbStG
  und verweist damit ausschließlich auf die in § 1 Abs. 1 Nr. 4 ErbStG genannten Familienstiftungen und
  Familienvereine.[2]
  
  [1] § 7 ErbStG Rz. 460.
  [2] Eisele, in Kapp/Ebeling, ErbStG, § 26 Rz. 2 f.; krit. auch Meincke/Hannes/Holtz, ErbStG, 2021, § 26
  Rz. 5.

 

[Straightpoop 676]

@PandaMunich

 

OK. I am prepared to concede that a foreign "Vermögensmasse" to which § 15 AStG applies and one to which §3 and §7 ErbStG applies may be entirely different.  After all the one under §15 AStG has the added qualification of > 50% family ownership/beneficial interest, etc. and, of course, § 15 AStG is a conduit for income tax rather than inheritance tax.

 

That concession here on TT notwithstanding I would not be professionally embarassed to make my argument to the FGH should the opportunity present itself. (I am quite confident it never will.)

 

The combination of §15 AStG and the ErbStG might well theoretically lead to triple taxation:  first income tax paid by the foreign trust, then income taxed again in Germany when accrued and thirdly inheritance taxed when finally distributed.

 

As a practical matter - at least with respect to US estates and trusts - there will in most cases be only double taxation (German income and inheritance taxes) on income earned in a "family" trust/estate. That is because US trusts are exposed to a very severe rate of tax on their undistributed/undistributable income. They can avoid that tax by simply distributing it or accounting for it as Distributable Net Income (DNI).  When they do so, the US trust itself pays no tax on that trust income nor does it accrue any tax. Only the beneficiaries accrue the tax liability which is not actually owed until the year the trust income is actually distributed to them.  Because it is ultimately their foreign tax paid on their foreign capital income there should be no barrier to claiming a foreign tax credit under § 32d Abs. 1 even if the foreign tax is actually paid at in a later calendar tax year than when the income accrues to them for purposes of § 15 AStG.

 

Or is that being overly optimistic about how German tax law treats timing differences in connection with the foreign tax credit?