Potential Double Taxation Of Distributions From A Foreign Trust

In individual cases, distributions from a taxopaque foreign family trust to a German tax resident beneficiary may be subject to both gift tax and income tax.

This was recently decided by the Munich Fiscal Court (FG Munich, judgement of 3 July 2024 – 4 K 2033/16), basically confirming the guidelines laid down by the Federal Fiscal Court (Bundesfinanzhof, BFH, judgement of 25 June 2021 - II R 31/19).

SUMMARY

Beneficiaries of a foreign trust who are tax resident in Germany should seek legal tax advice to avoid significant disadvantages.

One of these disadvantages is the possible double burden of gift tax and income tax if the beneficiary is entitled to income and/or principal. Therefore, a beneficiary resident for tax purposes in Germany should, if possible, not be granted any legal claim.