European Court of Justice Advocate General, Niilo Jääskinen, issued his opinion February 26 that freedom of establishment principles do not prevent Germany from imposing tax on the unrealized gains inherent in assets located in Germany upon the transfer of the assets to the owner’s foreign permanent establishment. The law allows the income to be spread over 10 years.
The case, Verder LabTec GmbH & Co. KG v. Finanzamt Hilden, (Case C‑657/13), involved a German limited partnership that transferred intellectual property rights of its permanent establishment in Germany to its Dutch permanent establishment.
Jääskinen said that in his opinion, a review of the case law shows that the Court has accepted the establishment of an exit tax in the context of a transfer of assets even if the taxable subject does not move to another member state, provided there is no immediate recovery of the tax.
He also said there is no relevant difference between situations where all the assets of a domestic permanent establishment of a resident are transferred to a foreign permanent establishment, and those where only some assets are transferred.
Given that the German exit may be paid over a period of 10 years, there is no basis on which this could be considered disproportionate, the Advocate General said.
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