Bequeather's tax obligations on the year of death in their quality as deductible bequest liabilities

In its Judgment of the 04.07.2012, the German Federal Finance Court (BFH) determined that the final income taxes to be paid by the legatee, in his quality as universal successor
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Cologne, AK ( December 4, 2012 - Cologne, Nordrhein-Westfalen ( prhwy ) December 4, 2012 - In its Judgment of the 04.07.2012, the German Federal Finance Court (BFH) determined that the final income taxes to be paid by the legatee, in his quality as universal successor, on behalf of the legator on the year of the latter's death, is a liability deductible of the legacy according to § 10 section 5 Nr. 1 of the German Inheritance Tax Law.

GRP Rainer Lawyers Tax Advisers in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, and Stuttgart elaborate: The legatee, in his quality of universal successor, takes the place of the legator even in the eyes of the fiscal law. Thus, the tax rights and obligations of the legator are transmitted to the legatee when the death-year elapses. Therefore, this tax obligation is to be taken into consideration as an inheritance obligation upon inheritance tax assessment.

The Financial Court of Niedersachsen opined in 2011, that the liabilities related to the legacy should not be taken into consideration upon the assessment of inheritance taxes. The Financial Court justified this opinion with § 26 sec. 1 of the German Inheritance Tax Law, stipulating that the income tax obligation is only due upon expiry of the assessment period (Judgment of the 23.02.2012, Reference Number: 3 K 332/10).

The Financial Court in Düsseldorf deemed § 36 sec. 1 of the German Income Tax Act as only important for the assessment of both income and church taxes as well as of solidarity tax contributions (Judgment of the 02.11.2011). The provision was said to solely regulate the question about when income was considered relevant for taxation, in other words when income taxes may be collected. Yet, it does not regulate when inheritance taxes may be considered to accrue.

According to the Federal Financial Court, not only tax liabilities are to be considered assessable legacy liabilities arising on the date of inheritance, but also tax obligations which the legator, as subject to income tax, has established by undertaking chargeable actions that are only assessable upon expiry of the year of his death. If the legatee has been refused deduction from the tax liabilities of the legator upon assessment of inheritance taxes, the legatee has the possibility to fight back against that refusal with an appeal. The abovementioned contradictory judgments would lose their influence in contrast to the judgment of the Federal Financial Court.

Inheritance taxes are a complex matter undergoing constant changes and can thus merely be understood by laymen. It is therefore advised to seek individual legal counsel on this field.


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Categories: Law

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