On 3 July 2019, the Federal Fiscal Court ruled that distributions by a foreign family foundation to a natura Person with his/her residence or habitual place of abode in Germany are in principle not subject to German gift tax. Basically, the jedement is very welcome. In many cases it leads to more legal certainty and opens up new possibilities for argumentation in cases that to date could be described as hopeless (especially in the case of trusts).
The judgement contains the following principles:
- Distributions by a family foundation are only subject to gift tax under § 7 (1) no. 1 German Inheritance Tax and Gift Act (“ErbStG”) if they obviously exceed the purpose foundation laid down in its articles of association.
- In this respect, the organs of the foundation have a far-reaching prerogative of assessment. The decision of the organs can only be challenged to a limited extent by the tax offices and the tax courts.
- The aforementioned principles apply equally to both foreign and domestic family foundations.
- Distributions of both foreign foundations and foreign trusts may be subject to gift tax if they are made to so-called “intermediaries” (“Zwischenberechtigte”) within the meaning of § 7 para. 1 no. 9 sentence 2 HS 2 ErbStG. According to the current ruling of the BFH (contrary to the statements from earlier court judgments), only those beneficiaries who are entitled to a claim in rem or at least a contractual claim or an expectancy to distributions or assets of the foundation or foreign assets (“ausländische Vermögensmasse”) qualify as intermediaries. Such claims and expectancies are atypical for family foundations. For many foreign family foundations, the judgement therefore increases legal certainty considerably. This is particularly the case in view of the fact that a claim based on a distribution resolution that has already been passed is not sufficient to create a position as an intermediary.
- No distinction is made between foreign family foundations and other foreign assets (trusts). In this respect, the present judgment of the Federal Fiscal Court offers new opportunities of applying the above principles to distributions from trusts as well.