The German Federal Tax Court recently published a decision
stating that distributions from a foreign trust to
beneficiaries resident in Germany are subject to German gift
tax (Bundesfinanzhof, September 27, 2012 – II R
45/10).
According to the court, distributions by an irrevocable trust
before its termination – be they principal or income,
discretionary or fixed-interest – to beneficiaries
resident in Germany are subject to German gift tax. An exception
should apply only for the settlor himself. This view had been taken
by several German tax authorities before, but was controversial.
With the recent Federal Court ruling there is hardly any room left
for a differing reasoning.
The recent ruling did not address thequestion of how
this gift taxation relates to income tax imposed on trust
distributions. Trust distributions have usually
been considered as being taxable under the German Income
Tax Act. Therefore, it may be assumed by tax authorities
that trust
