Introduction
Section 6 of the Foreign Tax Act (Außensteuergesetz – AStG) governs exit taxation for natural persons holding at least 1% in capital companies. The provision fictitiously treats the relocation or other removal of taxable assets from German fiscal jurisdiction as a disposal of the shares at their fair market value. It applies to taxpayers who have been subject to unlimited tax liability in Germany for at least seven of the past twelve years.
The taxable capital gain is calculated as the difference between the fair market value of the participation at the time of relocation and the acquisition costs of the participation. Since January 1, 2022, taxpayers have two options for paying the tax: (a) immediate payment or (b) applying for installment payments over seven years, which are generally only granted against security. The previously available option of deferral – at least for EU/EEA cases – has been removed for taxpayers.
Development of CJEU Case Law
The European fundamental freedoms, particularly Article 21 of the Treaty on the Functioning of the European Union (TFEU), guarantee the general freedom of movement for natural persons within the European internal market, including the right to relocate their tax residence for private reasons. These freedoms must be balanced against the legitimate fiscal interest of Member States in preventing tax losses upon relocation.
In line with the general dogma of fundamental freedoms, the CJEU has developed principles in a series of rulings stating that the taxation of capital gains at the time a State loses its taxation rights unjustifiably restricts the taxpayer’s freedom of movement unless overriding reasons of public interest can be invoked. These include the preservation of the allocation of taxing powers and efficient tax collection (for an overview, see Wöhlecke, IStR 2026, p. 604 [605 et seq.]).
A provisional conclusion was reached in 2019 with the so-called Wächtler judgment (CJEU, February 26, 2019 – C-581/17), which examined the relocation of a German national to Switzerland. The CJEU ruled that the German exit taxation regime without a deferral option violated the freedom of establishment, which is equally protected under the Free Movement Agreement. A German national who relocates to Switzerland while retaining their corporate shareholdings would, under § 6 AStG, be treated less favorably than a shareholder resident in Germany who continues their activities in the same manner without relocating. The Court found this unequal treatment unjustified.
The CJEU further stated that while the principle of effective tax collection generally justifies the immediate collection of tax debts, a blanket exclusion of deferral is neither necessary nor proportionate. Instead, the State of departure could address the risk of non-recovery by requiring the taxpayer to provide security where circumstances so demand.
With regard to the option of installment payments, the CJEU clarified in an obiter dictum that such a possibility would not eliminate the unequal treatment. Installment payments still represent a liquidity disadvantage for the taxpayer. The CJEU emphasized that installment payments are unsuitable for “eliminating the disadvantage constituted by the obligation to pay part of the tax owed at the time of the transfer of residence […].” In contrast, deferral until actual disposal and the realization of capital gains would be more favorable for the taxpayer.
Preliminary Ruling Procedure “Gena”
The demand for a deferral option until the actual realization of the value of the shares – derivable from the obiter dictum in the Wächtler judgment – appears, at first glance, incompatible with the current German regulation under § 6(4) AStG, which is limited to installment payment agreements.
The CJEU now has the opportunity to address this legal issue through a preliminary ruling procedure (Case C-430/25, “Gena”) initiated by a Polish court. The case involves an Italian-American national who moved to Poland on January 1, 2023, becoming fully taxable there, inter alia with valuable capital company shares. In anticipation of his planned relocation to Germany no earlier than 2028, he applied for a tax ruling on the tax treatment of his relocation. The Polish tax authorities confirmed his tax liability under Polish law in a decision dated December 31, 2024, which the taxpayer is challenging before the referring court.
Although the Polish exit tax is the immediate subject of the case, the legal question also concerns the German exit tax. This is because the Polish regulation – like the German one – compels the taxpayer to choose between immediate payment or installment payments over five years, rather than deferring the tax until the actual disposal of the company shares. Thus, the compliance of a provision essentially equivalent to the German regulation with EU law is under scrutiny.
In light of the Wächtler ruling, a finding by the CJEU that the Polish provision violates EU law would not be surprising. Such a decision would also have indirect implications for the German regulation.
Counterarguments of the German Legislator
The legislative reasoning from 2021 demonstrates an intensive engagement with CJEU case law, balancing the conflicting interests of taxpayer mobility and the State’s fiscal interests. The intention to reconcile these interests in a fair manner is explicitly stated (Bundestag Printed Paper 245/21, p. 52).
In response to the demand for deferral until disposal, the German legislator argues that the CJEU has recognized time-limited deferral models as proportionate in more recent rulings, particularly in DMC (CJEU, January 23, 2014 – C-164/12, para. 62) and Verder LabTec (CJEU, May 21, 2015 – C-657/13, para. 52). Furthermore, the legislator sees “no reasons for a different proportionality assessment regarding the duration of deferral […] or a differentiated approach between business and private assets or between company shares and other assets” (Bundestag Printed Paper 245/21, p. 52). Thus, installment-based tax collection could also meet the requirements of proportionality.
However, this argumentation overlooks the explicit differentiation demanded by the CJEU in the Wächtler judgment:
First, it is doubtful whether the regulatory context in question poses a risk of non-recovery that could justify overriding reasons of public interest, taking into account the actual regulatory circumstances and potential EU support mechanisms (CJEU, February 26, 2019 – C-581/17, DStR 2019, p. 425 [429, para. 66]; Schönfeld/Erdem, StuW 2022, p. 70 [95 et seq.]).
At the same time, the rulings cited in the Bundestag paper have limited relevance, as they concerned legal entities, whereas Wächtler and Gena deal with the exit taxation of natural persons (Linn/Schmitz, in: Gosch, AStG, 1st ed. 2025, § 6, para. 6).
Although this is partly disputed with reference to the Commission/Portugal judgment (CJEU, December 21, 2016 – C-503/14, para. 52), the standard and assessment must be adapted to the specific circumstances.
The starting point for this consideration is that the general freedom of movement under Article 21 TFEU—applicable to natural persons and thus to the relevant scenario—requires a stricter standard of review as one of the core fundamental rights of EU law (Schönfeld/Sedke, IStR 2025, p. 498 [507]).
In this context, the immediate liquidity disadvantage arising from installment payments at the time of relocation (and in each subsequent year) must be considered. This disadvantage particularly affects natural persons, who typically have less liquidity than legal entities and are thus more severely impacted by the burden. In extreme cases, exercising the right to freedom of movement could force them to sell their shares (Schönfeld/Erdem, StuW 2022, p. 70 [93]).
Regardless of the above considerations, the necessity of § 6(4)(1) AStG also appears questionable. This is because the legislator has at its disposal a versatile range of milder means – such as administrative assistance, recovery assistance, and security deposits – which it neither considers nor applies (Schönfeld/Erdem, StuW 2022, p. 70 [96 et seq.]).
In this light, there are substantial reasons to consider the current regulation incompatible with EU law. It remains to be seen whether the practical considerations cited for the legislator’s “one-size-fits-all solution” – in favor of “uniform rules for EU/EEA States and third countries” – will withstand the identified concerns.
Conclusion
With the understandable desire for generalization and uniform design, the legislator has raised questions about the dogmatic robustness of its regulatory concept, which the CJEU is expected to address – ideally within the coming year.
A legislative amendment would already be desirable now. In its current form, § 6 AStG acts as both a barrier to emigration and a deterrent to immigration. Those considering relocation or who have already relocated since 2022 should closely monitor the further course of the procedure and, where possible, keep tax assessments open.
This article was first published in: DER BETRIEB, Steuerboard, August 12, 2026