Deferral of German exit taxes when moving to Switzerland

The decision is significant for those affected by German exit taxation, potentially offering a precedent for tax deferral in similar cases in other locations.

The background:

After relocating to Switzerland in 2011, the plaintiff, Mr Wächtler challenged the compatibility of the German exit tax on his shares in a corporation with the freedom of establishment under the Agreement on the Free Movement of Persons (AFMP) between the EU and Switzerland. This led to a referral to the European Court of Justice (ECJ) for a preliminary decision on the tax’s compatibility with EU law.

Following a decade of legal proceedings and several court decisions, the case culminated in a significant ruling by the BFH in September 2023, which was published in January 2024.

The ruling:

The BFH ruled that, in cases of relocation to Switzerland, considering the AFMP, an indefinite, interest-free deferral of the exit tax can be actioned until the German business is sold and profit is realised.

This deferral is effective for all relocations up to 31 December 2021, but may depend on providing a security deposit. The decision could also apply in cases of relocation within the EU/EEA where a security deposit is less likely to be required.

The ruling contradicts communication circulated in 2019 by the German Federal Ministry of Finance which had not provided for a permanent deferral.

Outcome and implications:

This landmark ruling sets a potential precedent for individuals seeking to relocate to Switzerland, and defer applicable exit taxation.

The decision also opens the door for potential refunds of already paid exit taxes upon application for an unlimited and interest-free deferral.

Going forward, it is uncertain how the German tax authorities will respond, whether they will choose to adjust their stance or issue a non-application decree against the BFH’s decision. The judgment may yet influence future legislative adjustments regarding exit taxation.

How ZEDRA can help:

If you are considering relocating from Germany to Switzerland or further afield, our team of experts are here to help you navigate the process. Whether you would like support with ensuring tax compliance, company formation and entity management, or global mobility, HR and payroll, we’re here to make your move as seamless as possible.

For more information , please contact Vadim Neumann, Head of Global Expansion for Germany who also acts as Managing Director of ZEDRA’s Zurich and Zug offices.