A typical case of application of exit taxation in accordance with Section 6 AStG is a taxpayer resident in Germany with a significant shareholding in a corporation (e.g. GmbH) who moves abroad. The purpose of exit taxation is to ensure taxation of the hidden reserves of GmbH shares held as private assets on departure, as Germany then loses its right of taxation. If the termination of the unlimited tax liability is based on the taxpayer's only temporary absence, the exit tax no longer applies.
It was previously disputed whether, in addition to the actual return in the form of the (re-)establishment of unlimited tax liability, the taxpayer's intention to (re-)establish unlimited tax liability already existed at the time of departure. This is because the discontinuation of exit taxation in accordance with Section 6 para. 3 AStG (old version) was not intended for failed or "aborted" emigrations and was not intended to be a "repair provision" for "unsuccessful" departures for tax purposes (e.g. Münster tax court of 31 October 2019).
Supreme court rulings have now clarified that the criterion of "only temporary absence" leading to the lapse of exit taxation is fulfilled irrespective of an "intention to return" if the taxpayer actually becomes subject to unlimited tax liability again within the statutory time frame of five years - for whatever reason - after moving away.
The legislator had already adopted this view as a guiding principle in the new ATAD Implementation Act of 25 June 2021 (see BT Drs. 19/28652, p. 49), so that the case law of the highest court may still be of great relevance for cases before 2022.
TAXGATE advises entrepreneurs and families on relocating abroad and also supports them in selecting suitable domiciles, which often offer considerable tax advantages. It is essential to plan and analyse the tax implications in both the country of departure and the country of relocation, at least in the medium term.
