Still unclear: passive unbundling under new DBA?

August 22, 2024

If a shareholder of a GmbH moves abroad, the increase in the value of the GmbH shares at the time of departure is taxed (Section 6 of the Foreign Tax Act (AStG), known as exit tax). The same applies if the right of taxation is restricted for other reasons. This can happen if the centre of the shareholder’s interests in life shifts between two DBA countries.

However, the legal situation is unclear if the right of taxation of the GmbH shares is restricted for reasons beyond the shareholder’s control.

In the ruling of the Federal Fiscal Court (BFH) dated 16 April 2024 on the double taxation agreement with Spain (IX R 38/21), such a restriction of the right of taxation arose due to the DTT itself being renegotiated. The new DTT provided for a change in the allocation of the right to tax the shares. Naturally, the shareholder had no influence over these negotiations between Spain and Germany.

The tax authorities are of the opinion that the activity of the shareholder is irrelevant. Even a restriction due to changes in the DBA by the legislator would lead to the application of the exit tax.

The BFH left the legal question unanswered in its ruling and ruled in favour of the shareholder on procedural grounds. Unfortunately, the BFH did not provide any indication of how it might position itself on the legal issue.