Two and a half years after completion, the draft double taxation convention regarding estates, inheritances and gifts (hereinafter “Inheritance Tax DTC”), signed by Germany and France on 12 October 2006, was finally ratified by both states on 2 April 2009 to thereby take effect on 3 April 2009. The Inheritance Tax DTC with France is the 6th DTC regarding estates, inheritances and gifts which Germany has entered into following treaties with Denmark, Greece, Sweden, Switzerland and the USA. The Inheritance Tax DTC between Germany and Austria was terminated last year due to the Austrian abolishment of inheritance and gift taxes.

This number seems quite small when compared to the approximately 90 double taxation conventions with respect to taxes on income and capital and certain other taxes which Germany has concluded (hereinafter “Income Tax DTCs”).

What makes the Inheritance Tax DTC situation different from that of Income Tax DTCs is the low number of states which actually levy inheritance taxes. Throughout the EC, various countries (such as Sweden, Portugal, and Austria) have abolished their national inheritance tax systems. Outside the EC, the number of states levying inheritance taxes is also on the decline: e.g. Canada, Australia and New Zealand no longer have a national inheritance tax system.

Nevertheless, there is a need for DTCs in this area of taxation, particularly following a European Court of Justice (ECJ) decision of 12 February 2009 in which it held that the German preclusion of crediting Spanish inheritance tax against German inheritance tax does not conflict with the free movement of capital.
Bearing this decision in mind, the risk of double taxation in regard to succession cases involving assets situated outside Germany of a decedent resident in Germany should be considered when doing estate planning for such persons.