BFH, judgement of 17.11.2021 - II R 39/19- (inheritance under Italian law)

Central standards:

ErbStG § 1 para. 1 no. 1, § 2 para. 1 no. 1, § 3 para. 1 no. 1, § 9 para. 1 no. 1 letter a

BGB § 158, § 159, § 1922, § 1937, § 1941, § 1942, § 1952, § 1953

CC (Codice civile) Art. 456, Art. 457, Art. 459

Guiding principle:

If a domestic heir acquires an inheritance under Italian inheritance law, domestic inheritance tax arises at the time of the deceased's death and not only when the heir accepts the inheritance as required under Italian law.

Tenor:

The plaintiff's appeal against the judgement of the Hesse tax court of 22 August 2019 - 10 K 1539/17, DStRE 2020, 286 is dismissed as unfounded. The plaintiff shall bear the costs of the appeal proceedings.

Facts of the case:

1 I. The plaintiff and appellant (plaintiff) has only Italian nationality. On 24 August 2015, her father, an Italian national with last residence in Italy and an estate located there, died. The plaintiff, who was still living in the Federal Republic of Germany (Germany) at the time, was appointed 1/3 co-heir on the basis of statutory succession. In November 2015, she informed the defendant and appellant (FA) of the facts of the case, but also that she had not yet accepted the inheritance, as required by Italian law for an acquisition.

2 In September 2016, the claimant informed the court that she had given up her residence in Germany at the beginning of July 2016 and had moved to E. She then declared acceptance of the inheritance in three partial files on 19, 26 and 29 July 2016 in Italy. At the FA's request, she submitted an inheritance tax return, but objected to the German taxation. The FA assessed inheritance tax in an assessment dated 12.4.2017 and rejected her objection on 24.7.2017. The tax had already arisen on 24 August 2015 and therefore at a time when the claimant had a domestic residence.

3 In its action, the plaintiff continued to argue that the inheritance was not taxable in Germany. The tax court dismissed the action on this point of dispute. The taxable amount pursuant to § 2 para. 1 no. 1 sentence 1 alt. 3 sentence 2 letter a ErbStG is the date of the deceased's death, not the date of acceptance of the inheritance pursuant to Section 9 para. 1 no. 1 ErbStG. Pursuant to Art. 459 sentence 1 of the Italian Civil Code (Codice Civile - CC -), the plaintiff only became an heir after a state of abeyance through the constitutive acceptance of the inheritance. However, the acceptance did not qualify as a condition precedent. Pursuant to Art. 459 sentence 2 CC, it has retroactive effect under inheritance law to the time of the opening of the succession. According to Art. 456 CC, this was the time of death. The judgement of the tax court is published in DStRE 2020, 286.

4 With the appeal, the plaintiff alleges a violation of Section 2 para. 1 no. 1 sentence 1 alt. 3 sentence 2 letter a ErbStG in conjunction with § 9 para. 1 no. 1 letter a ErbStG. An acquisition comparable to universal succession within the meaning of Section 1922 BGB and Section 9 para. 1 no. 1 ErbStG requires an acquisition from the deceased, which is not recognised under Italian inheritance law. There, the death of the testator initially leads to a period of suspense with an estate without a legal entity. The potential heir is only called upon to inherit and only becomes an heir with the declaration of acceptance. The acceptance corresponds to a condition within the meaning of Section 158 BGB and Section 9 para. 1 no. 1 letter a ErbStG. The benchmark for the comparison of laws is solely the factual requirements of the legal concepts to be compared, while the fiction of retroactivity under Italian civil law concerns the level of legal consequences, which is not decisive. A retroactive effect for tax purposes must be expressly regulated, which is precisely what is lacking in § 9 para. 1 no. 1 letter a ErbStG. It should also be borne in mind that doubts regarding the qualification of a foreign legal institution must lead to the choice of the more favourable option for the taxpayer.

5 The plaintiff requests that the contested judgement of the Hesse tax court and the inheritance tax assessment of the defendant of 12 April 2017 in the form of the objection decision of 24 July 2017 be revoked.

6 The FA requested that the appeal be dismissed.

7 It agrees with the opinion of the tax court and also points out that the testator did not set any conditions. Furthermore, there are also legal and economic uncertainties in German inheritance law that do not weaken the cut-off date principle.

Reasons:

8 II The appeal is unfounded and must be dismissed in accordance with § 126 para. 2FGO. The tax court correctly recognised that the plaintiff's acquisition as heir after her father is subject to inheritance tax in accordance with the Inheritance Tax Act. The tax arose on the date of her father's death. At this point in time, the plaintiff at least had her habitual residence in Germany.

Acquisition through inheritance

9 1 Pursuant to Section 1 (1) No. 1 ErbStG, inheritance tax is levied on acquisitions by reason of death. According to § 3 para. 1 no. 1 Alt. 1 ErbStG, this includes the acquisition by inheritance as defined in § 1922 BGB.

10 a) According to Section 1922 (1) BGB, upon the death of a person (succession), their assets (inheritance) are transferred in their entirety to one or more other persons (heirs). The succession can be based on statutory (Sections 1924 to 1936 BGB) or voluntary succession (Section 1937 BGB). According to Section 1942 (1) BGB, the inheritance passes to the appointed heir without prejudice to the right to disclaim it (accrual of the inheritance). The transfer to the next appointed heir as a result of the disclaimer is deemed to have taken place at the time of the inheritance (Section 1953 (2) BGB).

Unlimited tax liability for residents

11 b) Pursuant to Section 2 para. 1 no. 1 ErbStG, tax liability arises for the entire accrual of assets (unlimited tax liability) in the cases of Section 1 para. 1 nos. 1 to 3 ErbStG if, among other things, the acquirer is a resident of Germany at the time the tax arises (Section 9 ErbStG). According to Section 2 para. 1 no. 1 sentence 2 letter a ErbStG, residents include natural persons who have a domicile or habitual residence in Germany.

Occurrence of the condition is decisive for the accrual of tax

12 c) Pursuant to Section 9 para. 1 no. 1 ErbStG, the tax generally arises upon the death of the testator in the case of acquisitions upon death, but for the acquisition of the deceased subject to a condition precedent pursuant to Section 9 para. 1 no. 1 lit. a Alt. 1 ErbStG at the time of the fulfilment of the condition.

13 aa) The term „condition“ in Section 9 para. 1 no. 1 letter a Alt. 1 ErbStG is linked to the civil law concept of a condition in Section 158 para. 1 BGB (Federal Fiscal Court judgement of 22 January 2020 - II R 41/17, BFHE 267, 460, BStBl. II 2020, 459, DStR 2020, 1043 para. 28). A condition within the meaning of Section 158 (1) BGB is the provision attached to a legal transaction that its effects depend on a future, uncertain event (BFH of 6 May 2020 - II R 11/19, BFHE 269, 424, BStBl. II 2020, 746, DStR 2020, 1961 para. 14). Whether section 9 para. 1 no. 1 letter a Alt. 1 ErbStG should be limited to conditions set by the testator (according to the judgement of the RFH of 2 December 1930 - I e A 395/397/30, RStBl. 1931, 122, 123) does not need to be decided here.

Effect of condition precedent ex nunc

14 bb) If a legal transaction is carried out subject to a condition precedent, the effect made dependent on the condition shall take effect upon the fulfilment of the condition in accordance with Section 158 (1)BGB. ex nunc on. The fulfilment of the condition has no retroactive effect ex tunc (judgement of the BGH of 21 May 1953 - IV ZR 192/52, BGHZ 10, 69, NJW 1953, 1099, under II.1.). As long as the condition has not materialised, the effectiveness of the legal transaction is uncertain or pending (BFH in BFHE 269, 424, BStBl. II 2020, 746, DStR 2020, 1961 para. 14). The parties can only refer the consequences of the occurrence of the condition back to an earlier point in time in accordance with Section 159 BGB (Bork in Staudinger, BGB, 2020, Section 159 para. 6; Erman/Armbrüster, BGB, 16th edition, Section 159 para. 1; Westermann in MükoBGB, 8th edition, Section 159 para. 1; Armgardt in jurisPK-BGB, 2020 edition, Section 159 para. 8).

Acquisition under foreign law may be subject to domestic inheritance tax

15 2. if an acquisition by reason of death takes place under foreign civil law, it may be subject to inheritance tax in Germany insofar as the economic significance of the accrual of assets is equivalent to an acquisition covered by the Inheritance Tax Act (see BFH of 4 July 2012 - II R 38/10, BFHE 238, 216, BStBl. II 2012, 782, DStRE 2012, 1261 marginal nos. 20 to 23).

16 a) Insofar as the Inheritance Tax Act refers to legal concepts of inheritance law, in the case of a foreign inheritance statute, its meaning is decisive. If the institutions of foreign inheritance law do not correspond to those of German inheritance law, German law must be used to determine whether and what significance is to be attributed to the foreign legal transactions for German taxation. It is not the formal structure of the foreign law that is decisive. Rather, both the legal consequences and the economic result must correspond to the domestic facts. If German civil law provides several structures for the economic result of the facts realised under foreign law, the more lenient taxation applies (see RFH ruling in RStBl. 1931, 122; BFHin BFHE 238, 216, BStBl. II 2012, 782, DStRE 2012, 1261 para. 23, 28).

Legal consequences of foreign regulations must be included

17 b) The legal consequences of provisions must be included in the comparative legal qualification. These determine the legal and economic content of a legal institution. The factual requirements of a legal provision alone say nothing about the content and meaning of the provision (cf. already BFH of 15 May 1964 - II 177/61 U, BFHE 79, 481, BStBl. III 1964, 408, BeckRS 1964, 21005731, and of 7 May 1986 - II R 137/79, BFHE 147, 70, BStBl. II 1986, 615, BeckRS 1986, 22007663, in each case on the legal status of a foreign asset manager in comparison to an executor of a will). The BFH judgement of 8 June 1988 - II R 243/82 (BFHE 153, 422, BStBl. II 1988, 808, BeckRS 1988, 22008568) did not change these standards of review. To the extent that the BFH may have made a misleading statement there that the „requirements“ of the domestic legal institution (e.g. for a condition precedent) had to be fulfilled in the foreign situation, this did not refer solely to the factual requirements, but to all legal characteristics of the provision, including the legal consequences, because the BFH also continued to consider the economic significance of the foreign legal institution to be decisive.

Legal consequences and economic result must correspond to condition precedent under German law

18 c) These general principles of comparative law apply not only to the acquisition facts themselves, but also to the determination of the time at which the tax arises and the answer to the related question of whether a legal institution under foreign law corresponds to a condition precedent within the meaning of Section 9 para. 1 no. 1 letter a Alt. 1 ErbStG. The decisive factor is therefore whether the legal consequences and the economic result of this legal institution correspond to those of the condition precedent under German law. The comparative legal analysis can therefore not be limited to the factual requirements of the condition pursuant to Section 158 (1) BGB.

Comparability of foreign law with domestic law not binding under appeal law

19 d) A differentiation must be made for the comparative legal qualification. According to § 155 S. 1 FGOiVm Section 293 ZPO, it is the task of the tax court as the court of fact to determine the relevant foreign law ex officio (see, for example, BFH of 22 March 2018 - X R 5/16, BFHE 261, 132, BStBl. II 2018, 651, DStRE 2018, 968 marginal no. 22, and of 27 March 2019 - I R 33/16, BFH/NV 2020, 201, BeckRS 2019, 35572 marginal no. 53). The findings on the existence and content of the foreign law must be made in accordance with Section 155 S. 1 FGO in conjunction with Section 560 ZPO and must be treated as facts for the purposes of appeal (see in detail BFH in BFHE 261, 132, BStBl. II 2018, 651, DStRE 2018, 968 para. 23). On the other hand, there is no obligation under appeal law with regard to the question of whether the foreign law determined by the tax court is comparable to domestic law in the individual case. This is an application of law based on the content of the foreign law and thus on the findings of the tax court.

Acquisition under Italian law is subject to domestic inheritance tax at the time of death

20 3. for the acquisition of an heir under Italian inheritance law, domestic inheritance tax arises at the time of the death of the deceased and not only upon acceptance by the heir. The Senate can base this assessment on the text and content of the relevant provisions of the CC. The findings of the tax court in this regard are sufficient and are not contested in themselves.

21 a) The acquisition of an inheritance pursuant to Art. 456 et seq. CC is taxable pursuant to Section 3 para. 1 no. 1 Alt. 1 ErbStG is taxable. It is to be qualified as an inheritance within the meaning of Section 1922 BGB.

22 aa) The acquisition on the basis of a foreign inheritance statute can correspond to the accrual of the inheritance pursuant to Section 3 para. 1 no. 1 Alt. 1 ErbStG in conjunction with Section 1922 BGB if, according to the applicable foreign law, the death of a person leads directly by operation of law to universal succession to their assets. Differences in detail are irrelevant (see BFHin BFHE 238, 216, BStBl. II 2012, 782, DStRE 2012, 1261 para. 29 f.). However, an inheritance can also be an acquisition whose validity requires legal declarations, as is the case in German law with the acquisition of the testamentary heir, the heir appointed by waiver and the contractual heir (Sections 1937, 1953, 1941 BGB).

23 bb) According to these standards, in the case of an inheritance under Italian inheritance law, an acquisition by inheritance within the meaning of § 3 para. 1 no. 1 Alt. 1 ErbStG occurs. This is a comparable succession of assets. Pursuant to Art. 456 CC, succession is opened at the time of death at the place of the deceased's last domicile. According to Art. 457 CC, the appointment to the succession is made by law or by will; according to Art. 459 CC, the succession is acquired by acceptance. It is true that, due to the need for acceptance, acquisition under Italian inheritance law cannot take place by operation of law alone. However, acceptance does not result in acquisition solely by virtue of a legal transaction, but only represents an element of a legal transaction in addition to other conditions for acquisition.

Acceptance under Italian law is a retroactive event, ...

24 b) Pursuant to Section 9 para. 1 no. 1 ErbStG, the tax arises on the death of the testator. The acceptance of the inheritance under Italian law is not to be qualified as a condition precedent pursuant to Section 9 para. 1 no. 1 letter a Alt. 1 ErbStG in conjunction with Section 158 para. 1 BGB, but as a retroactive event in accordance with Section 175 para. 1 sentence 1 no. 2 AO.

25 aa) It is a legal and economic characteristic of the condition that the conditional legal transaction only takes effect upon fulfilment of the condition. ex nunc unfolds. In the case of a condition precedent, the heir only becomes an heir upon fulfilment of the condition. ex nunc Owner of the estate. This is the intrinsic reason for the deferral of the accrual of tax in § 9 para. 1 no. 1 letter a ErbStG (RFH judgement of 24 September 1935 - III e A 37/35, RFHE 38, 225, 231).

... because the Italian assumption of inheritance is ex tunc

26 bb) The acceptance of an inheritance pursuant to Art. 459 CC is not legally and economically comparable to the condition. Although the inheritance is only acquired with the declaration of acceptance, it has retroactive effect to the time of the opening of the succession in accordance with Art. 459 sentence 2 CCex tunc. In substantive law, the inheritance is therefore acquired at the time of the succession.

27 cc) This result does not reveal any contradictions in judgement.

28 The mere fact that a state of suspension exists, as in the case of the condition, does not result in comparability. The decisive factor is that the termination of the state of suspension has different legal effects - in the case of the condition only for the future, in the case of the declaration of acceptance retroactively also for the suspension phase.

29 It is irrelevant that a retroactive effect under civil law does not change the actual course of events and therefore has no significance for taxation based on the actual facts (see BFH of 27 April 2005 - II R 52/02, BFHE 210, 507, BStBl. II 2005, 892, DStR 2005, 1937, under II.3.a), because the taxation of the inheritance is linked to a legal transaction.

30 Finally, the question of whether an acceptance could be declared with effect for an already deceased person under Italian inheritance law is not decisive for the case in dispute. Moreover, under German law too, the heir can disclaim the inheritance pursuant to Section 1952 (2) BGB and thus deprive the heir of the inheritance after his or her death.

Acquisition of inheritance under Italian law not a conditional acquisition

31 dd) The principle that the more lenient taxation must apply in the case of several available structures under German law does not change this assessment. The acquisition of an inheritance by acceptance under Italian law cannot be qualified as either a conditional or unconditional acquisition, but is clearly not a conditional acquisition.

32 4 According to these standards, the tax court correctly recognised that the plaintiff's declarations of acceptance with regard to her father's estate had an effect back to the date of his death, 24 August 2015, and that the inheritance tax arose on that date. At this point in time, the claimant was still subject to unlimited tax liability, as she at least had her habitual residence in Germany. The valuation of the estate and the other parameters of taxation are not in dispute.

33 5 The decision on costs follows from Section 135 (2) FGO.