Exit Taxes

02 January 2014
Author: JHA

Case C-164/12 DMC Beteiligungsgesellschaft mbH v Finanzamt Hamburg-MItte

By Amita Chohan

German rules provide that when partnership interests are transferred by the means of a contribution to a capital company and the transferor receives shares in return, the transferred business assets are to be valued as part of a going concern if at the time of the granting of shares, the holder of the assets is no longer liable to tax in Germany on the gains that accrued from the transfer of those assets. However, investors who are still liable to tax in Germany are only taxed on capital gains once these are realised. These rules further provide that a transferor can opt to pay the tax due on unrealised capital gains either immediately or by way of deferment.

In this case, the transferors’ limited partnership (established in Austria) was dissolved upon the transfer of all of its interests to a German capital company. Under the relevant German rules, the value of the contributions of the limited partners was assessed to tax as part of a going concern, which meant that the unrealised capital gains on the interests in the capital company were immediately taxed.

The ECJ ruled that Article 63 TFEU should be interpreted as meaning that the legitimate objective of maintaining the balanced allocation of the power to impose taxes between Member States may justify a difference in the treatment of investors but only if it was impossible for Germany to tax capital gains, once realised. It was further ruled that where the taxation of unrealised capital gains is concerned, it is proportionate for the taxable person to be provided with the following payment options: (1) staggered; or (2) immediate.

This article appears in the JHA January 2014 Tax Newsletter, which also features:

  1. FII and Dividend Tax Update
  2. Tax Credit Claims Made Out Of Time by Alice McDonald
  3. Unjust Enrichment Defence Compatible with Equal Treatment by Alice McDonald

You can download the complete newsletter as a PDF below:

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