Proposal for Tightening German Exit – Summary
In December 2019 the Federal Ministry of Finance published a draft bill for a law implementing the Anti-Tax Avoidance Directive (ATAD-Umsetzungsgesetz).
This draft bill by the Federal Ministry of Finance contains among other topics the implementation of Art.9 and 9b of the Directive with respect to hybrid structures, a reform of the German CFC rules (Section 7ff German Foreign Tax Code), new rules about transfer pricing and, the subject of that Newsletter a drastic reform of the German exit tax (Section 6 of German Foreign Tax Code).
In summary, under the current concept of German exit tax a German resident taxpayer who is subject to tax on his worldwide income in Germany and who moves to another country is deemed to sell his shares in a corporation upon departure and is subject to exit tax. However, in case the taxpayer moves to another EU/EEA country he receives under the current law an unlimited, interest free and unsecured deferral of the exit tax payable, as long as he continued to hold the shares. In case of a departure to another non EU/EEA country the exit tax becomes due immediately.
According to the proposed draft by the German Federal Ministry of Finance there will be no longer any deferment possible but the calculated exit tax has to be paid in annual equal installments over 7 years without any differentiation whether the taxpayer moves to a EU/EEA state or to a non EU/EEA country.
