Panda touched on this topic here:
Re: UK Inheritance and the German Finanzamt but I didn't want to hijack the thread. I've been told there may be double taxation on some stocks I inherited from my father abroad, and I feel as Panda said, "it just isn't fair"
In Canada, the UK, and other places, when a donor gifts an asset, the recipient aquires it with an effective purchase price of its market value on the date of the gift. That's because there's a deemed disposition by the donor, who is taxed as though they had sold it at that price. More or less the same is true if someone dies and passes on an asset. When the recipient sells the asset later, the capital gains tax they pay is reduced accordingly, because of this step-up in the cost base due to the taxes paid by the donor.
In German law though, there's no such deemed disposition or tax on the donor, and the recipient receives the asset with the original purchase cost for capital gains purposes. I've been told by a well-known German probate lawyer that there can't be any credit for the taxes paid in Canada, because there's no tax in Germany to credit it towards, and by another accountant, because the Canadian tax was paid by a different person. So when I sell the stocks (which were all purchased after 2008), I'll pay the full capital gains tax again in Germany, from the original cost price. Canada does have a DTA agreement with Germany, but there isn't anything in it specifically about this.
I also spoke to tax lawyer/tax accountants at a couple of the big accounting firms. One said that he saw a good argument for a step-up under German tax law, due to the estate being a separately-taxable legal entity. But he didn't give details. He said the Finanzamt may not agree, and quoted me a fee of €15,000-€22,000 to apply for a verbindliche Auskunft (a ruling from the Finanzamt), which is more than the tax I'd save... The other one said there's no legislation or case law, and suggested that I quietly submit bank statements showing the estate's stepped-up cost base, and hope the Finanzamt doesn't question it.
It seems kind of crazy to me. This must happen all the time, how can the answer of how it will be taxed be "nobody knows"? Is it really true that it's an individual negotiation with your particular Finanzamt every time? It seems to me that my father's cost base was stepped-up on the date of his death, just before the estate/I aquired them. I don't see how Germany can go back into his affairs and apply German tax law to him.
There's also a second deemed disposition by the estate, if it distributes an asset to a foreign resident, based on the difference between the value at the date of death and the date of distribution. I'm wondering if this one could be credited as a kind of exit tax, since Germany does acknowledge that and allow for a step-up in cost base?
