Germany–Switzerland · Inheritance tax
Treaty Articles 5–10 · BFH case lawGermany–Switzerland inheritance tax treaty: which country may tax the estate?
In addition to their general double taxation agreement on income and capital, Germany and Switzerland have a separate agreement covering estate and inheritance taxes. The agreement of 30 November 1978 applies to the estates of deceased persons who were resident in Germany, Switzerland or both countries. It allocates taxing rights, particularly for real estate, permanent establishment assets and other property. A distinctive feature is Germany’s additional taxing right under Article 8(2) where the beneficiary lives in Germany. This right is, in turn, restricted by Article 10.
A separate agreement
The inheritance tax treaty is separate from the general Germany–Switzerland tax treaty
For inheritances involving Germany and Switzerland, the first distinction is between the general treaty on income and capital and the separate agreement covering estate and inheritance taxes.
The inheritance tax treaty has been in force since 28 September 1980. It takes the deceased’s residence at the time of death as its starting point and contains its own rules for allocating taxing rights.
The treaty does not eliminate domestic tax claims from the outset. The first step is to establish whether tax liability arises under German or Swiss law. The treaty then restricts or coordinates overlapping taxing rights.
Basic principle
First identify the asset type, then allocate taxing rights
| Asset type | Treaty provision | Basic principle |
|---|---|---|
| Real estate and other immovable property | Article 5 | The state where the property is located may tax |
| Business assets of a permanent establishment | Article 6 | The state where the permanent establishment is located may tax |
| Ships and aircraft operated in international traffic | Article 7 | Special rule relating to the enterprise |
| Bank accounts, securities, receivables and ordinary corporate shareholdings | Article 8(1) | Generally the deceased’s state of residence |
| Beneficiary with a permanent home or habitual abode in Germany | Article 8(2) | Additional German taxing rights may arise |
| Estate debts | Article 9 | Allocation to the relevant assets |
| Double taxation | Article 10 | Exemption or tax credit |
Treaty Article 4
Where was the deceased resident?
The treaty’s central starting point is the deceased’s residence for treaty purposes at the time of death, rather than the heir’s residence.
If the deceased was resident in only one contracting state under the domestic rules, the allocation is generally straightforward. If the domestic rules establish residence in both countries, Article 4 contains its own tie-breaker rules.
These consider, in particular, the permanent home, the centre of personal and economic relations, habitual abode and, ultimately, nationality.
The inheritance tax treaty has its own residence rule
Residence under the income tax treaty should therefore not be carried over to an inheritance without further examination. Article 4 of the separate inheritance tax treaty is the relevant provision.
Treaty Article 5
Real estate: the state where the property is located may tax
Article 5 concerns immovable property. If a deceased person resident in one contracting state owned immovable property in the other state, the state where the property is located may also tax it.
For Swiss real estate, this means that Switzerland generally has taxing rights as the state where the property is situated. Conversely, Germany may tax German real estate belonging to a deceased person resident in Switzerland.
Under the treaty, immovable property includes, in particular, land and rights treated as immovable property under the law of the state where the property is situated.
The taxing right of the property’s location state does not yet resolve double taxation
Whether the other state may also include the property in its tax calculation, and whether exemption or a tax credit then applies, depends on the remaining provisions, particularly Articles 8 and 10.
Treaty Article 6
Permanent establishment assets: taxing rights for the state where the establishment is located
Business assets of a permanent establishment of an enterprise belonging to a deceased person resident in one contracting state may generally be taxed in the other state if the permanent establishment is located there.
The definition of a permanent establishment includes, in particular, a place of management, branches, offices, factories and workshops. Construction and installation projects may also constitute permanent establishments if they meet the relevant duration requirements.
Article 6 also contains an express rule for partnership interests. It may therefore be particularly important for cross-border sole proprietorships and business partnership structures.
Shares in a Swiss AG are not automatically permanent establishment assets
A corporation is legally separate from its shareholder. The fact that a Swiss AG operates a business therefore does not automatically bring shares held by an individual as a private investment within Article 6. Such shareholdings generally need to be assessed under Article 8.
Treaty Article 8(1)
Other property: generally taxable in the deceased’s state of residence
Under Article 8(1), property not covered by Articles 5 to 7 may generally be taxed only in the contracting state where the deceased was resident for treaty purposes at the time of death.
This residual rule is particularly important in many inheritance cases.
Bank deposits
Bank accounts generally constitute other property under Article 8.
Securities
Shares, investment fund units and other securities generally fall under the residual rule.
Corporate shareholdings
Ordinary interests in an AG or GmbH are generally covered by Article 8.
On its own, Article 8(1) would provide a clear residence-based rule
For a deceased person resident in Switzerland, bank deposits, securities and ordinary corporate shareholdings would generally be allocated exclusively to Swiss taxation. However, Article 8(2) contains an important special rule for beneficiaries living in Germany.
Treaty Article 8(2)
Beneficiary in Germany: additional German taxing rights
If the beneficiary had a permanent home or habitual abode in Germany at the time of the deceased’s death, Germany may generally also impose tax, notwithstanding Articles 5 to 7 and Article 8(1).
The German Federal Fiscal Court (BFH) refers to this as supplementary taxing rights or overriding taxation.
Switzerland’s taxing rights generally remain unaffected. This is precisely where the relief provisions in Article 10 become necessary.
- The deceased may have lived in Switzerland
- The beneficiary has a permanent home or habitual abode in Germany
- Germany generally obtains additional taxing rights
- Swiss taxing rights remain in place
- Article 10 applies correspondingly
Article 8(2) does not give Germany unrestricted taxing rights
The third sentence of Article 8(2) expressly provides for the corresponding application of Article 10(1). As a result, Germany may have to exclude certain assets from the actual inheritance tax base despite the beneficiary’s German residence.
Exception where both persons are Swiss nationals
Under the treaty, the special beneficiary rule in Article 8(2) does not apply if both the deceased and the beneficiary were Swiss nationals at the time of death.
Treaty Article 9
Estate debts generally follow the associated assets
The treaty governs more than the allocation of positive asset values. Article 9 determines where estate debts are taken into account.
Debts economically connected with a particular asset are generally deducted from the value of that asset.
A mortgage on Swiss real estate is therefore generally allocated to that property. The same applies to debts directly connected with permanent establishment assets or other specifically identifiable assets.
Other debts are generally deducted from property taxable only in the deceased’s state of residence. The treaty also contains rules for any excess debts.
BFH II R 45/92
In its judgment of 25 October 1995, the German Federal Fiscal Court addressed the allocation of debts under Article 9 of the Germany–Switzerland inheritance tax treaty. The economic connection with the relevant asset is particularly important for that allocation.
Treaty Article 10
Exemption or tax credit: how double taxation is avoided
Article 10 contains the treaty’s substantive relief provisions. The decisive factors are the deceased’s state of residence and the type of asset involved.
If the deceased was resident in Germany, Germany exempts immovable property situated in Switzerland within the meaning of Article 5(2) if the deceased was a Swiss national at the time of death.
However, Germany may take the exempt property into account when determining the tax rate applicable to the remaining taxable acquisition.
Where this special exemption does not apply, Article 10 generally provides for Swiss tax permitted under the treaty to be credited against German inheritance tax.
If the deceased was resident in Switzerland, Switzerland generally exempts property that may be taxed in Germany under Articles 5, 6 or 7, but may likewise take it into account when determining the tax rate.
| Situation | Relief mechanism |
|---|---|
| Deceased resident in Germany, Swiss immovable property, deceased was a Swiss national | Germany: generally exemption with progression |
| Deceased resident in Germany, Swiss assets not covered by the special exemption | Generally a credit for Swiss tax permitted under the treaty |
| Deceased resident in Switzerland, German assets covered by Articles 5–7 | Switzerland: generally exemption with progression |
| Deceased resident in Switzerland, beneficiary resident in Germany, Article 8(2) | Article 10(1) applies correspondingly to Germany’s supplementary taxation |
Case law
BFH case law on the Germany–Switzerland inheritance tax treaty
The case law shows particularly clearly that individual treaty articles must not be applied in isolation. The interaction between Article 8(2) and Article 10 is especially important for beneficiaries resident in Germany.
Deceased Swiss national, heir in Germany, Swiss real estate
The deceased was a Swiss national living in Switzerland. The beneficiary lived in Germany. The estate included Swiss real estate.
The BFH first confirmed Germany’s general supplementary taxing rights under Article 8(2) arising from the beneficiary’s German residence.
At the same time, the BFH clarified that the third sentence of Article 8(2) requires Article 10(1) to be applied correspondingly. Germany’s supplementary taxing rights are therefore restricted by the exemption provided in that article.
Because the deceased was a Swiss national, the immovable property situated in Switzerland had to be exempted from German taxation. However, its value could be taken into account under the progression rule.
Parallel decision on exemption with progression
Judgment II R 62/15 concerns the same legal issues and is substantively comparable to II R 61/15.
This case also involved a co-heir living in Germany who inherited a share of a Swiss estate that included Swiss real estate.
The BFH confirmed that Swiss real estate exempt under the treaty could be taken into account when determining the tax rate on the remaining taxable acquisition.
Allocation of estate debts under Article 9
The BFH considered a cross-border estate and the question of which assets loan liabilities should be allocated to under the treaty.
A particularly important consideration is whether there is an economic connection between the debt and a specific asset.
The judgment therefore remains relevant to the systematic application of Article 9 of the treaty.
Different treatment of multiple beneficiaries
This case shows that a single estate with several beneficiaries does not necessarily result in identical German taxation for everyone involved.
The residence and personal circumstances of each beneficiary may lead to different outcomes, particularly through Article 8(2).
The judgment focused on the allocation of a former business asset tax relief. When considering today’s relief provisions, the legislative changes made since then must therefore be taken into account.
BFH II R 61/15 has significance beyond real estate
The decision explains the fundamental operation of Article 8(2): Germany’s supplementary taxing rights arising from a beneficiary’s German residence do not stand alone. They are restricted by the corresponding application of Article 10. This framework is essential to interpreting the treaty as a whole.
Practical cases
Three common treaty scenarios
Deceased in Switzerland — heir in Germany — securities portfolio
The portfolio generally falls under Article 8. However, Article 8(2) may create additional German taxing rights because the beneficiary is resident in Germany. Any Swiss tax must be coordinated through the treaty’s relief provisions.
Deceased Swiss national — heir in Germany — Swiss real estate
Switzerland may tax the property under Article 5. Where the deceased was a Swiss national, Germany’s supplementary taxing rights may be restricted through the corresponding application of Article 10. An effect on the tax rate through progression may remain.
Deceased in Switzerland — German permanent establishment
Permanent establishment assets may be taxed in Germany under Article 6. Switzerland must then grant the relief provided for in the treaty.
Assessment sequence
Apply the inheritance tax treaty in eight steps
Domestic tax liability
First establish German and Swiss tax claims.
Deceased’s residence
Determine treaty residence under Article 4.
Asset type
Classify the assets as real estate, business assets or other property.
Articles 5–8
Determine the primary taxing right for each asset.
Beneficiary’s position
Consider Article 8(2) for a beneficiary resident in Germany.
Debts
Allocate estate debts under Article 9.
Article 10
Determine whether exemption or a tax credit applies.
Progression
Assess the effect of exempt assets on the German tax rate.
Frequently asked questions
Germany–Switzerland inheritance tax treaty
Do Germany and Switzerland have a separate inheritance tax treaty?
Does the general Germany–Switzerland tax treaty apply to inheritance tax?
Does the inheritance tax treaty also apply to gifts?
Which country may tax Swiss real estate?
Which country taxes a Swiss bank account?
What are Germany’s supplementary taxing rights?
Does this mean Germany may always tax the entire Swiss estate?
What did the BFH decide in II R 61/15?
Can exempt Swiss assets still increase German tax?
What rules apply to shares in a Swiss AG?
What rules apply to a Swiss permanent establishment?
How are mortgages treated?
Is Swiss inheritance tax always credited in Germany?
Why is the deceased’s nationality important?
Can beneficiaries of the same estate be taxed differently?
Further tax insights
Inheritance & gifts: Germany–Switzerland
Germany–Switzerland tax advice
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