German Tax Authority Allows Deferral for Switzerland Relocations

German tax authorities have confirmed a new practice allowing for the deferral of taxes for individuals who relocated from Germany to Switzerland before January 1, 2022. This change follows earlier rulings by the European Court of Justice (ECJ) and Germany's Federal Fiscal Court (BFH), permitting tax deferrals under specific conditions.

Under German tax law, individuals moving abroad with holdings in corporations have faced an "exit tax" on unrealized capital gains. This tax, intended to capture latent reserves, can create liquidity issues as it becomes due upon departure, even if the assets are not sold.

The situation for those moving to Switzerland, a non-EU/EEA country with a free movement agreement, has been a point of legal contention. Both a 2019 ECJ ruling and a 2023 BFH ruling stipulated that tax deferrals without interest should be granted in these cases. The tax authorities have now accepted this judicial interpretation.

The updated guidance primarily applies to individuals who moved to Switzerland before January 1, 2022, and are citizens of an EU member state or Switzerland. They must demonstrate that they are subject to a comparable income tax in Switzerland. The deferral is typically granted upon provision of security. However, it is crucial to note that relocations occurring after December 31, 2021, are subject to new legislation that does not provide for tax deferral, only installment payments over a maximum of seven years.