Germany–Switzerland · Inheritance & Gifts
Tax treaty · Article 10 · Section 21 ErbStGDouble taxation of inheritances and gifts between Germany and Switzerland
If Germany and Switzerland tax the same transfer of assets, a distinction must be made between inheritances and gifts. Inheritances are covered by a special inheritance tax treaty, which allocates taxing rights and prevents double taxation, particularly through exemption or a tax credit. This agreement generally does not apply to ordinary lifetime gifts. In such cases, section 21 of the German Inheritance and Gift Tax Act (ErbStG) may allow a credit for Swiss gift tax that has actually been assessed and paid.
Two systems of relief
Inheritances and gifts follow different rules
When assets are transferred across borders, both Germany and Switzerland may have a right to impose tax under their respective domestic laws.
How this double taxation is prevented depends largely on whether the assets are transferred by inheritance or by gift.
For inheritances, the special Germany–Switzerland inheritance tax treaty must be applied first. Ordinary gifts, by contrast, generally do not benefit from equivalent general treaty relief.
| Transfer of assets | Primary relief provision | Typical method |
|---|---|---|
| Inheritance involving Germany and Switzerland | Germany–Switzerland inheritance tax treaty | Exemption or tax credit under Article 10 |
| Ordinary gift involving Germany and Switzerland | The inheritance tax treaty generally does not apply | Consider a tax credit under section 21 ErbStG |
| Gift of a business | Assess the special Germany–Switzerland arrangement separately | Depends on the specific classification |
Acquisitions on death
The treaty takes precedence for inheritances
The special agreement between Germany and Switzerland applies to the estates of deceased persons who were domiciled in one or both contracting states at the time of death.
The agreement first allocates taxing rights for the different categories of assets.
Double taxation is then prevented, in particular through Article 10.
- Article 5 – immovable property
- Article 6 – permanent establishment assets
- Article 8 – other assets
- Article 8(2) – recipients in Germany
- Article 9 – estate debts
- Article 10 – exemption or tax credit
Article 10 of the treaty
Double taxation is not always eliminated using the same method
Article 10 of the inheritance tax treaty provides different forms of relief. Depending on the deceased’s domicile, nationality and the type of asset, relief may take the form of either an exemption or a credit for foreign tax.
It is therefore too broad to say that Swiss inheritance tax is always simply credited against German tax.
Taxing rights
Articles 5 to 8 first determine which state may tax a particular asset.
Exemption
Certain foreign assets may be excluded from the German tax base.
Tax credit
In other cases, the assets remain taxable and Swiss tax is credited against German tax.
Exemption method
Exemption does not always mean there is no effect on German tax
In certain cases, the inheritance tax treaty requires Germany to exempt assets from tax.
The treatment of immovable property located in Switzerland and owned by a Swiss national is particularly relevant.
Where the treaty exemption applies, the asset concerned is not directly subject to German inheritance tax.
However, the exempt assets may be taken into account when determining the tax rate applicable to the remaining taxable acquisition.
Exemption with progression for inheritance tax
The German Federal Fiscal Court (BFH) has confirmed that Swiss assets exempt under the treaty may be taken into account when determining the tax rate applicable to the remaining taxable acquisition.
Treaty exemption does not necessarily mean no tax impact
An asset exempt under the treaty may therefore increase the tax rate applied to other assets, even though it is not directly taxed in Germany.
Credit method
Under the credit method, the acquisition generally remains in the German tax base
Under the credit method, the asset generally remains subject to tax in Germany.
Swiss inheritance tax permitted under the treaty is then credited against German inheritance tax.
However, the credit cannot result in Germany refunding Swiss tax without limitation. It is capped at the German tax attributable to the foreign assets concerned.
| Step | Treatment |
|---|---|
| 1. Value the acquisition | Determine the German tax value under German valuation rules |
| 2. Calculate German tax | The acquisition generally remains part of the German tax base |
| 3. Establish the Swiss tax | Take account only of the relevant Swiss inheritance tax |
| 4. Calculate the credit | The credit is limited to the German tax attributable to the foreign assets concerned |
Recipients in Germany
Article 8(2) can itself give rise to double taxation
One particular feature of the Germany–Switzerland inheritance tax treaty is the additional German taxing right in cases involving certain recipients resident in Germany.
If the recipient has a permanent home or habitual abode in Germany at the time of death, Article 8(2) generally allows Germany to impose additional tax, even though the deceased was resident in Switzerland.
This can bring the same estate within the scope of taxation in both Switzerland and Germany.
Article 8(2) therefore refers back to Article 10 so that the resulting double taxation is eliminated accordingly.
BFH II R 61/15
The Federal Fiscal Court emphasised that Germany’s supplementary taxing right under Article 8(2) must not be applied in isolation. The corresponding relief provisions in Article 10 must also be taken into account.
Lifetime gifts
The inheritance tax treaty generally does not apply to ordinary gifts
Gifts have a different starting point. The scope of the 1978 agreement covers estates and estate or inheritance taxes.
An ordinary lifetime gift therefore generally does not benefit from protection under this treaty.
For example, if a Swiss canton taxes a gift from a parent resident in Switzerland to a child living in Germany, unlimited German gift tax liability may also arise because of the child’s residence in Germany.
In this situation, section 21 ErbStG must be considered in particular as a basis for relief.
Do not apply the same treaty treatment to inheritances and gifts
The exemption and credit provisions of the inheritance tax treaty cannot simply be applied to an ordinary gift.
Section 21 ErbStG
When can Swiss gift tax be credited in Germany?
Section 21 ErbStG allows recipients subject to unlimited tax liability to claim a credit for a corresponding foreign tax, provided no applicable double taxation agreement takes precedence.
The foreign tax must have been assessed, be attributable to the recipient, have actually been paid and no longer be subject to any entitlement to a reduction.
The foreign assets concerned must also be subject to German inheritance or gift tax.
| Requirement | Section 21 ErbStG |
|---|---|
| Unlimited tax liability | A case falling within section 2(1) no. 1 ErbStG |
| No treaty taking precedence | Section 21(1) generally applies to the extent that no double taxation agreement applies |
| Foreign tax | Must correspond to German inheritance or gift tax |
| Assessment | The foreign tax must have been assessed |
| Payment | The foreign tax must actually have been paid |
| No entitlement to a reduction | There must be no remaining entitlement to a refund or reduction of the tax |
| The same assets are taxed | The foreign assets must also be subject to German tax |
| Application | The credit is not granted automatically |
The amount of the credit is limited
If only part of the acquisition consists of foreign assets, the portion of German tax attributable to those assets is determined. Foreign tax can be credited only up to that amount of German tax.
Section 21 ErbStG also imposes a time limit
The German tax on the foreign assets must have arisen within the statutory five-year period following the date on which the foreign tax liability arose.
Case law
BFH II R 54/09: Swiss gift tax can be credited under section 21 ErbStG
Donor in Ticino, recipient in Germany
In the case before the court, the recipient’s mother lived in the canton of Ticino. She made cash gifts to her son, who was subject to tax in Germany.
Germany initially assessed German gift tax. Gift tax was subsequently also assessed in the canton of Ticino and paid by the recipient.
The BFH confirmed that the Swiss gift tax could, in principle, be credited against German gift tax under section 21(1) ErbStG.
Of particular practical importance was the fact that the Swiss tax was paid only after the German gift tax assessment had become final.
The BFH treated the subsequent payment of foreign tax eligible for a credit under section 21 ErbStG as an event with retroactive tax effect that could allow the German tax assessment to be amended.
Practical significance of the judgment
The German assessment need not necessarily be completed before the final Swiss gift tax liability is established. If the foreign tax is validly assessed and paid later, a German tax credit may still be claimed retrospectively, subject to the statutory requirements.
Supporting evidence
No credit without Swiss tax documentation
Section 21 ErbStG requires the recipient to substantiate the value of the foreign assets and the assessment and payment of the foreign tax.
In cases involving Switzerland, complete records of cantonal tax assessments and payment evidence should therefore be retained.
Tax assessment
The cantonal inheritance or gift tax assessment.
Proof of payment
Evidence that the foreign tax has actually been paid.
Asset documentation
Documents showing the value and location of the foreign assets.
Translations may be required
The German tax office may require a certified translation of documents in a foreign language. This issue generally does not arise for Swiss assessments issued in German.
Practical examples
Three different double taxation scenarios
Swiss real estate, heir in Germany
Switzerland may tax the property as the state in which it is located. Germany may also have a right to tax because of the recipient’s connection to Germany. The final relief is determined under the inheritance tax treaty.
Cash gift from Switzerland, recipient in Germany
Germany generally imposes tax because of the recipient’s connection to Germany. If the Swiss canton also levies gift tax, section 21 ErbStG must be considered in particular.
Inheriting shares in a Swiss AG
Shares generally fall within Article 8 of the treaty. Where the recipient is in Germany, Article 8(2) may establish an additional German taxing right.
Calculation principle
A tax credit does not necessarily eliminate every additional burden
Where foreign tax is credited, the combined tax burden often amounts to at least the higher of the two effective tax burdens.
A higher Swiss tax liability cannot be offset against German tax without limitation. The German tax credit is capped.
| Example | Amount |
|---|---|
| German tax attributable to the Swiss assets | EUR 80,000 |
| Creditable Swiss tax | EUR 50,000 |
| Remaining German tax | EUR 30,000 |
| Combined tax burden | EUR 80,000 |
If, by contrast, the Swiss tax amounts to EUR 100,000 while only EUR 80,000 of German tax is attributable to the foreign assets concerned, the credit is generally limited to the German maximum.
Assessment sequence
Address double taxation in eight steps
Type of acquisition
Distinguish between an inheritance and a gift.
Germany
Determine tax liability under German domestic law.
Switzerland
Determine cantonal tax liability and the amount of tax.
Tax treaty?
Apply the agreement to inheritances.
Method
Determine whether exemption or a tax credit applies.
Section 21
For gifts, assess the credit available under domestic law.
Evidence
Document the assessment, payment and asset values.
Assessments
Coordinate the German and Swiss tax assessments.
Frequently asked questions
Double taxation between Germany and Switzerland
Can an inheritance be taxed in both Germany and Switzerland?
Is there an inheritance tax treaty between Germany and Switzerland?
Does this treaty also apply to gift tax?
Is Swiss inheritance tax always credited in Germany?
What does exemption mean?
What does a tax credit mean?
Can Swiss gift tax be credited in Germany?
What are the requirements of section 21 ErbStG?
Is the credit granted automatically?
Can the Swiss tax credit exceed the German tax liability?
What did the BFH decide in II R 54/09?
What happens if the Swiss tax is assessed later?
Which Swiss documents does the German tax office require?
Is the Swiss cantonal tax relevant?
Should the German tax return wait until the Swiss assessment is available?
Further reading
Tax treaties, tax liability & cross-border succession
Germany–Switzerland tax advice
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