DTT inheritance tax

Purpose of double taxation treaties

The abbreviation DTA stands for a so-called double taxation agreement. This is a treaty under international law between two or more countries in order to avoid one and the same acquisition of assets being taxed in different countries and thus effectively being taxed twice.

Such a constellation is not uncommon, especially in cross-border cases. While Germany levies inheritance tax if either the testator or the heir was resident in Germany, other countries tax on the basis of the nationality of the testator, for example.

It is therefore possible that two or even more countries would levy inheritance tax. For example, if the deceased had their last habitual residence in Germany, but the heir lives abroad. There is a risk of double taxation not only in the case of unlimited tax liability in Germany, but also in the case of limited tax liability, for example if German real estate is involved.

For such cases where there is a risk of multiple taxation, there are double taxation agreements that regulate which state has the right to levy taxes and to what extent these are to be credited. Such agreements exist in the area of income tax as well as inheritance and gift tax. If the deceased was resident in both countries, the so-called "tie-breaker rule" often determines which country has the right of taxation. In this respect, it is a staged examination in order to be able to specifically classify the respective facts. According to the double taxation agreement with the USA, for example, this is Article 4 of the DTA with the USA for inheritance taxes. If this does not lead to a clear result, the center of vital interests is decisive and if this also does not lead to a result, the habitual residence is decisive and if this does not help either, the nationality is decisive.

Contracting states

Double taxation treaties currently exist in the area of inheritance tax with.

Offsetting provision

However, even in cross-border cases with countries with which no double taxation agreement has been concluded, it is possible to have foreign inheritance tax credited in Germany via the provision of Section 21 ErbStG. This presupposes that the tax in question is related to the acquisition under inheritance law.

When such a constellation exists and the amount that can be credited must be examined on a case-by-case basis. The basic rule is that a credit is possible if the foreign state levies a tax that is comparable to the German tax.

Our experienced specialist lawyers at sherb for tax law and inheritance law in Frankfurt and Berlin will be happy to advise you in connection with international inheritance law and the relevant regulations for avoiding double taxation.