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New ruling on exit tax by the Bundesfinanzhof

Under the German Foreign Transactions Tax Act, exit tax has to be paid by those who hold substantial stakes in a corporation (at least 1%) and who terminate their unlimited tax liability status in Germany by giving up their German domicile or habitual residence in Germany. In such a case, the person has to pay tax on the disposal gain for the shares they hold in a corporation, although the sale price is then replaced by the market value of the shares. There is however the option of the return provision that subsequently averts the tax hit again. The Federal Fiscal Court (Bundesfinanzhof, BFH) recently decided on the conditions for such a return provision.

In its ruling of 21.12.2022 (case reference: I R 55/19), the BFH contradicted the fiscal administration to-date that has stipulated that there should be an intention to return (together with the respective credible demonstration) when the move happens. The BFH has now decided that for the return provision to apply it is not necessary for the shareholder to have the intention to return already at the time when the move away from Germany occurs. If the original termination of the unlimited tax liability status was based on a merely temporary absence by the shareholder and if within seven years after terminating the unlimited tax liability status in Germany they once again have unlimited tax liability then, under certain conditions, the tax claim will once again be cancelled. The BFH judges did not see an adequate basis in the wording of the legislation for the criterion of an intention to return already at the time when the move happens. 

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