A Franco-German tax treaty on inheritances and gifts!

The Franco-German tax treaty to avoid double taxation with regard to taxes on inheritances and gifts is finally coming into force.
The treaty was ratified by Germany on 11 July 2007 and France has recently authorised its ratification through a law dated 26 February 2009 (OJ n°0049 of 27 February 2009, page 3465). The treaty should therefore come into force within the next few days, as the French and German authorities are currently at the stage of exchanging instruments of ratification.
This new treaty, which is innovative and adapted to new international situations, has a certain number of distinctive features, including:
 It allows France to maintain – as regards French real estate – the right to tax all transfers of real estate on death or as a gift, irrespective of the planned form of ownership. In fact, the treaty treats shares in “preponderantly real estate companies” and “indirect holdings” as real estate assets. These concepts, which were integrated into French domestic law on 1 January 1999 (article 750 (tertio) of the CGI (General Tax Code)), had already been transposed into the Franco-American treaties of 1978 and 1994. However, for German residents, structuring their real estate holdings may continue to be opportune for other reasons.
 It entitles France to tax all property (movable property and real estate) received by an heir, legatee or donee who is a French resident for tax purposes, even when the deceased person and his or her assets are not located in France. France has therefore obtained the right to apply the territoriality rules of article 750 (tertio).3 of CGI, which it cannot do under other tax treaties.
 In order not to penalise expatriate managers who are donees or legatees, and to promote international professional mobility, the treaty provides that citizens of one State who at the time of the transfer of property are temporarily resident in the other State (for less than five years during the last seven) will be considered as still having their domicile in the State whose nationality they hold.

For more information: “L’impôt sur les successions et les donations dans un contexte international : l’exemple de la nouvelle convention franco-allemande” (“Tax on inheritances and gifts in an international context: the example of the new Franco-German Treaty), Me Bertrand Savouré and Guillaume Micolau, La Revue Fiscale Notariale, n°1, January 2008.

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