Federal Fiscal Court rules on exit taxation and intending to return

This article was written by our experts Kristina Laubeck and Andreas Klotz.

New development: Exit taxation, that is, the notional tax on shares in corporations when moving abroad, can be retrospectively annulled if the reason for returning to Germany was only a temporary absence. It was only possible to avoid exit tax until now by returning within a certain period (currently seven years) and, furthermore, only if the intention to return had been credibly demonstrated to the tax office at the time of leaving. 

In its judgment on 21 December 2022 (file reference I R 55/19), the Federal Fiscal Court (Bundesfinanzhof) decided that if there was no intention to return at the time of leaving, this also counts as a merely temporary absence, annulling the associated exit taxation. 

This means: The upshot of the Federal Fiscal Court’s decision is that every actual return within the set period results in the exit taxation being retrospectively annulled. It is therefore no longer necessary to prove an intention to return at the time of leaving. 

Please note: This Federal Fiscal Court decision relates to the old position of the law regarding the previous version of section 6 of the Foreign Tax Act (Außensteuergesetz – AStG). However, since the general intention of the revised section 6 of the Foreign Tax Act regarding return has not changed, we consider that the case law can also be applied to the new legal position.