Deloitte Tax-News: Print

URL: http://www.deloitte-tax-news.de/german-tax-legal-news/bfh-rules-on-claw-backof-capital-allowances-under-uk-law.html
22.03.2011
BFH rules on claw-back of capital
allowances under U.K. law
The German Federal Tax Court (BFH) recently ruled that the U.K. taxation according to
the rule allowing a “claw-back of capital allowances” does not represent the taxation of
capital gains from a German tax perspective (case reference: I R 49/09).
Consequently, capital gains arising from the sale of U.K. real property held by a German
resident taxpayer that are only subject to taxation under the “claw-back rules in the
U.K. may be taxed in Germany according to article X VIII paragraph 2 of the GermanyU.K. tax treaty.
The case involved a German limited partnership that held an interest in a U.K. asset
managing limited partnership. The U.K. partnership disposed of real property and,
according to U.K. tax law, the disposal did not lead to the taxation of realized capital
gains, but only a claw-back of capital allowances previously claimed on certain fixtures
that were part of a building. According to article VIII of the Germany-U.K. treaty, capital
gains derived from the alienation of immovable property may be taxed in the state in
which the property is situated. However, according to the subject-to-tax clause in the
treaty, such gains are excluded from taxation in Germany only if they are subject to tax
in the U.K.
According to the BFH, the claw-back of prior allowances does not mean that the capital
gains are subject to tax in the U.K. because the taxation of the claw-back of the
allowances does not include the gains from the disposal, but only adjusts the previous
taxation of the gains. The BFH did not follow the earlier decision of the Lower Tax Court
of Düsseldorf, which had concluded that any taxation in the U.K. is sufficient to exclude
Germany’s taxing rights regardless of whether the taxation is limited to certain parts of
the gains (e.g. fixtures) and amounts (e.g. prior allowances).
Ansprechpartner
Dr. Bettina Lieber | Düsseldorf
Maryna Shekhovtsova | Düsseldorf
www.deloitte-tax-news.de
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