What just happened?
Germany’s Federal Fiscal Court (BFH) has ruled that the escape hatch from § 15 AStG—the rule that taxes German residents on the undistributed income of a foreign family foundation—cannot be limited to EU/EEA structures. Cutting off non-EU foundations breaches the EU Treaty’s free-movement-of-capital guarantee. The court therefore reads the exemption as covering all foreign family foundations and trusts, including those in Switzerland, Liechtenstein, the Channel Islands and other “third” countries.
Why does it matter?
Before the ruling
| Before the ruling | After the ruling |
| Only EU/EEA foundations could sidestep attribution tax if beneficiaries proved no control over the assets. | Any overseas foundation or trust can claim the same relief—provided beneficiaries truly lack legal and practical control. |
In the Swiss test case, beneficiaries had received no payouts but were still taxed on the foundation’s income. The BFH tore up those assessments and made the tax office pick up the costs.
Who benefits?
- Families using Swiss, Cayman, Jersey, BVI or Delaware structures.
- Common-law discretionary trusts (covered by § 15 (4) AStG) where beneficiaries hold no enforceable rights.
- Taxpayers with open assessments back to 2012—the decision applies retroactively.
What you must prove
- Legal lock-out – The deed or charter must deny beneficiaries any right to demand distributions or liquidate the vehicle.
- Practical lock-out – Beneficiaries (or related parties) cannot appoint or remove the board, protector or trustee.
- Information exchange – There must be a treaty or agreement allowing Germany to obtain data from the foundation’s home country (most major jurisdictions qualify).
Failing the test means that the § 15 attribution still bites.
The bottom line
Germany’s attribution tax on foreign family foundations is no longer an automatic penalty for non-EU structures. With solid governance and paperwork, Swiss and other third-country vehicles now have the same chance to escape “phantom-income” taxation as their EU counterparts. Act quickly—legislative counter-measures are almost inevitable.
Get in touch with Global Tax Recovery’s international team for more info.
