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The Stuttgart Finance Court (FG) has ruled that a gift is not taxable in Germany if the donor, who is resident in Germany and Sweden, had their centre of life in Sweden at the time of the gift.
This also applies if Sweden had already abolished gift tax at the time of the gift, according to the Finance Court.
The plaintiffs in the three cases are siblings. In 2005, their father had gifted each of them shares in a Swedish public limited company. At the time of the gift, the father, as the donor, was resident in Germany and Sweden and had his centre of life in Sweden. The recipients of the gift were not resident in Germany. The defendant tax office assessed gift tax against all three recipients. It argued that the father was resident in Germany and that, with the abolition of gift tax in Sweden at the beginning of 2005, Germany had the right of taxation. The recipients argued that Sweden had the right of taxation. The father was resident there as that was where he spent most of his time.
In the opinion of the Finance Court, Sweden has the right of taxation, even though gift tax had been abolished in Sweden at the time of the gift. In Germany, there is unlimited tax liability because the donor has a residence in Germany. However, according to the double taxation agreement with Sweden (DTA), which covers inheritance, gift, income and wealth tax and has not been terminated or amended, the residence of the persons involved in the gift is decisive. If the donor is resident in both contracting states and has a permanent residence in both contracting states, the centre of his or her life interests is decisive. At the time of the gift, the donor had his centre of vital interests in Sweden.
The DTA does not provide for a special allocation of taxation rights to Germany, as the gifted company shares are neither immovable property nor movable business assets of a part of a company located in Germany.
Even after the abolition of gift tax in Sweden, the wording and structure of the agreement stipulate that residency or the centre of vital interests is decisive for the distribution of the tax base. It is irrelevant whether the other contracting state levies gift tax. This also applies if, as in the cases in dispute, the gift remains untaxed as a result. Each contracting state is free to decide whether and how it exercises its right of taxation. There is no so-called fallback clause.
The Stuttgart Fiscal Court has allowed appeals in all three cases. The appeals lodged by the defendant tax office are pending before the Federal Fiscal Court (Ref.: II R 28/20, II R 29/20 and II R 27/20).