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German-French inheritance cases present a number of tax challenges. Both Germany and France levy inheritance tax on assets located within their territory and on the worldwide assets of persons resident in their respective countries.
The double taxation agreement between these countries is intended to provide clarity and prevent double taxation, but on closer inspection it reveals a remarkable complexity.
The DTA applies to all inheritance cases occurring since 3 April 2009.
An essential prerequisite for its application is that the deceased had a residence in one of the two countries at the time of their death.
According to Article 9 of the agreement, the country in which the deceased had their residence generally has the sole right of taxation.
However, there are exceptions where the country of location (the country of location is the country in which the assets from which the income derives are located) may tax certain assets, such as immovable property, business premises, ships, aircraft and movable tangible property.
The country where the property is located may tax real estate, business premises, ships, aircraft and movable tangible assets, regardless of the country of residence.
In cases where the deceased was not resident in France, French tax on the property located there is calculated at a specific rate that applies to all assets taxable under French law (progression clause).
If the heir is resident in the other country, that country also has a competing right of taxation.
This leads to scenarios in which both Germany and France may tax the estate, depending on where the deceased and the heir were resident at the time of death.
The agreement provides that the tax paid in one country on the same assets is credited in the other country in order to avoid double taxation.
The application of the DTA often proves complex, particularly due to the numerous exceptions and the determination of the residences of the deceased and the heir.
The correct application of the agreement requires a thorough understanding of both German and French tax law.
The Franco-German double taxation agreement in inheritance cases is an example of the complexity of international tax regulations. It shows how important it is to carefully examine individual circumstances and seek professional advice to ensure that inheritances are taxed correctly and unnecessary tax burdens are avoided.