The Contents of Highlights & Insights on European Taxation

Please find below a selection of articles published this month (December 2025) in Highlights & Insights on European Taxation, plus one freely accessible article.

Highlights & Insights on European Taxation (H&I) is a publication by Wolters Kluwer Nederland BV.

The journal offers extensive information on all recent developments in European Taxation in the area of direct taxation and state aid, VAT, customs and excises, and environmental taxes.

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Year 2025, no. 12     

TABLE OF CONTENTS 

GENERAL TOPICS

– Commission Staff Working Document on second evaluation DAC

(comments by the Editorial Board) (H&I 2025/354)

– Second evaluation DAC. Commission confirms effectiveness of DAC in strengthening tax compliance

(comments by the Editorial Board) (H&I 2025/353)

– Commission defends harmonised tobacco excise proposal as proportionate and health-oriented

(comments by Giorgio Emanuele Degani) (H&I2025/352)

 DIRECT TAXATION, CASE LAW

– Attal and Associés (C-321/24). Notary fees based on total estate value across Member States do not breach EU capital movement rules. Court of Justice

(comments by Edwin Thomas) (H&I 2025/403)

– Familienstiftung (C-142/24). National tax rules on family foundations may differentiate between domestic and foreign entities under proportionality principle. Court of Justice

(comments by Vassilis Dafnomilis) (H&I 2025/380)

 INDIRECT TAXATION, CASE LAW

– Zlakov (C-744/23). Lawyer’s free representation qualifies as a taxable service when costs are recoverable from the opposing party. Court of Justice

(comments by Giorgio Beretta) (H&I 2025/397)

 CUSTOMS AND EXCISE

– Kolinsen (T-690/24). Excise duty payable in state of arrival when goods missing under duty suspension. General Court

(comments by Giorgio Emanuele Degani) (H&I 2025/351)

 MISCELLANEUOS

– Gondert v. Germany (34701/21). Violation right to fair trial by not providing adequate reasoning for refusing applicants request for a preliminary ruling. European Court of Human Rights

(comments by Edwin Thomas) (H&I 2025/404)

 FREE ARTICLE

– Familienstiftung (C-142/24). National tax rules on family foundations may differentiate between domestic and foreign entities under proportionality principle. Court of Justice

(comments by Vassilis Dafnomilis) (H&I 2025/380)

For the third time in succession, the Court of Justice of the European Union (CJ) has examined the compatibility of German inheritance and gift tax legislation with EU law, this time in the Familienstiftung case. Not long ago, Germany lost the BA case (CJ 12 October 2023, C‑670/21 BA v Finanzamt X, ECLI:EU:C:2023:763), where its inheritance tax rules granted more favourable treatment for rental properties located in the Germany/EU/European Economic Area (EEA), but not in third countries (See V. Dafnomilis, ‘BA. EU law precludes German rules on calculation of inheritance tax on property in a third country,’ H&I 2024/41.)

Two years earlier, Germany had won in the case of XY (CJ 21 December 2021, C‑394/20 XY v Finanzamt V, ECLI:EU:C:2021:1044), concerning proportionate inheritance tax allowances, a judgment that resolved a period of uncertainty regarding the treatment of tax allowances for inheritance tax purposes (and, by analogy, gift tax purposes) in the EU. To be more precise, Germany won with respect to the granting of proportionate tax allowances for cross-border inheritances, a restriction the Court accepted as justified on the basis of the coherence of the tax system. However, it had lost the part of the case concerning the different treatment of deductions related to the reserved portion as an expense of a cross-border inheritance (See V. Dafnomilis, ‘XY. Inheritance tax. EU law precludes non-deductibility of debt arising from reserved portions in case of limited tax liability,’ H&I 2022/15).

Taken together, these cases illustrate the recurring scrutiny of the German inheritance system by the CJ and the disputes that can arise from the application of inheritance tax legislation. In this context, Germany stands out as the EU Member State whose inheritance and gift tax legislation has been most frequently scrutinized by the CJ for its compatibility with EU primary law.

Familienstiftung also represents the first case in which the Court has examined family foundations in the context of inheritance and gift taxation, with previous cases Geurts (CJ 25 October 2007, C‑464/05 Geurts and Vogten, ECLI:EU:C:2007:631) dealing with family companies and Missionwerk Werner (CJ 10 February 2011, C‑25/10 Missionswerk Werner Heukelbach eV v Belgian State, ECLI:EU:C:2011:65) and Commission v Greece (CJ 4 May 2017, C‑98/16 Commission v Greece, ECLI:EU:C:2017:346) concerning charities and other non-profit organisations.

Familienstiftung concerns German gift tax legislation. When assets are transferred to a German foundation by a resident founder, the gift tax due is calculated based on the relationship between the most distantly related beneficiary under the foundation charter and the founder:

-      Class I: Applies if the most distant beneficiary is a close relative (e.g., spouse, children, grandchildren).

-      Class II: Applies if the most distant beneficiary falls into the second category of relatives (e.g., siblings, nieces/nephews, in-laws).

-      Class III: Applies when there is no qualifying family relationship or when the foundation is foreign (in cross-border cases, German law defaults to Class III regardless of the actual family relationship).

This classification determines the applicable tax allowance and rate. Transfers under Class I or II benefit from higher allowances and lower rates. This preferential treatment is referred to as the ‘tax class privilege’. Conversely, the gift tax due on a comparable transfer of assets from a German founder to a foreign family foundation is always assessed under Class III, regardless of the relationship between the founder and the beneficiaries. This entails lower allowances and higher tax rates. In the case at hand, the transfer of assets by the German founder to the Liechtenstein family foundation was taxed at 30% with a tax allowance of € 20,000, whereas in a purely domestic situation, the tax rate would have been 19% with a tax allowance of € 200,000 through the application of Class I. It is also interesting to note that the Hessian Fiscal Court previously held, in 2019, that restricting the tax class privilege to domestic foundations violates the free movement of capital. It did not refer the matter to the CJ because it considered the restriction manifestly unlawful. The tax authorities later withdrew their appeal, leaving the issue unresolved. See Markus Schewe, ‘Familienstiftungen (Teil 1) – Steuerklassenprivileg vs. Erbersatzsteuer – was wird fallen?,’ Kümmerlein (24 March 2025), available at https://www.kuemmerlein.de/aktuelles/einzelansicht/familienstiftungen-teil-1-steuerklassenprivileg-vs-erbersatzsteuer-was-wird-fallen/.

In a nutshell, the CJ considered that the German laws introduce a restriction on the free movement of capital under Article 40 of the EEA Agreement, but that this restriction is justified on the basis of the coherence of the tax system. In this note, I examine each step of the CJ’s assessment and provide my own evaluation where relevant. In my view, certain aspects of the judgment are convincingly reasoned, whereas others raise questions and merit closer scrutiny.

Assessment based on the free movement of capital

The CJ considered that the German legislation falls within the scope of the free movement of capital under Article 40 of the EEA Agreement (‘EEA’). This article mirrors Article 63 of the Treaty on the Funcioning of the European Union (‘TFEU’). This is not a surprising finding: this interpretation aligns with the overwhelming majority of CJ judgments on inheritance and gift taxation, which have consistently been decided on the basis of the free movement of capital, with earlier judgments referring to ‘gifts and endowments’ under heading XI (‘Personal capital movements’) of Annex I to Directive 88/361/EEC – the Old Capital Directive (See CJ 23 February 2006, C‑513/03 van Hilten-van der Heijden, ECLI:EU:C:2006:131, para. 39; CJ 17 January 2008, C‑256/06 Jäger, ECLI:EU:C:2008:20, para. 25; and CJ 17 October 2013, C‑181/12 Welte, ECLI:EU:C:2013:662, para. 20).

An interesting point is that the German government argued that Article 31 EEA (freedom of establishment) was the relevant freedom in the case at hand, rather than free movement of capital (Familienstiftung, para. 41). This argument was, in my view, strategic: in the event of incompatibility with EEA law, Germany would not have had to extend the tax class privilege to inter vivos transfers to third-country family foundations.

In its assessment, the CJ focused on the classification of the transfer of assets to the family foundation as a gift, while the setting up of a foundation is, as the Court noted, merely a means to achieve the transfer of assets between generations (Familienstiftung, para. 43). I agree with this assessment and see a clear distinction between the present case and Geurts, which was one of the two cases decided on the basis of the freedom of establishment. In Geurts, the CJ examined Belgian law granting an inheritance tax exemption for family businesses only if they employed a minimum number of workers in Belgium during the three years preceding the death of the deceased. To reach this conclusion, the Court considered that the deceased’s shareholding in the company had to exceed 50% as per the applicable legislation. Similarly, in Scheunemann (CJ 19 July 2012, C‑31/11 Marianne Scheunemann v Finanzamt Bremerhaven, ECLI:EU:C:2012:481) the Court examined the German legislation in the light of the freedom of establishment. The tax advantages at issue (namely, a € 225,000 allowance and a reduced-rate valuation under which only 65% of the remaining value of the participation was included in the tax base) were available only where the deceased held more than 25% of the shares in the company, a threshold considered sufficiently high to confer influence over its management and control. The Court, therefore, found that the German legislature had linked the advantage to a level of participation that – as I read it – went beyond a mere financial investment. As a result, the CJ found that the material scope was not met in the case at hand, since the inheritance concerned a 100% privately held participation in a corporation whose seat and place of effective management were situated in Canada.

By contrast, in Familienstiftung, such an assessment did not take place. First, because a family foundation does not have owners or shareholders, and more importantly, because, in my view, the transfer of the inter vivos property to the foundation was implicitly treated as an investment. A family foundation’s purpose incorporates, among other things, investment for the benefit of the family: the foundation invests its assets – such as real estate, securities, or other holdings to maintain and grow the capital that supports its beneficiaries. This investment activity, therefore, is part of its fiduciary duty to sustain the foundation’s purpose, reinforcing the link to the free movement of capital rather than the freedom of establishment. On the other hand, in Geurts, the employment condition directly affected the ability of companies to operate and maintain their seat or workforce in Belgium, which is an aspect of establishment rather than a mere investment. And in Scheunemann, the German legislation in essence affected the testator’s choice of where to pursue economic activities through participations (in that case, a 100% shareholding), thereby falling within the material scope of the freedom of establishment.

Restriction and Comparability

The CJ found that the tax class privilege provision introduced a difference in treatment, amounting to a restriction. According to the Court, the preferential tax class treatment applies only to resident family foundations, resulting in a higher tax liability for transfers to non-resident family foundations than for transfers to resident ones. This reduces the value of property transferred to a non-resident foundation and enables resident foundations to have greater financial means than those available to non-resident foundations (Familienstiftung, para. 51). The reduction in the monetary value of inheritances is a consideration commonly used by the CJ to establish the existence of a restriction (see e.g., BA C‑670/21, para. 44). Interestingly, the second aspect – namely, the greater financial means available to domestic family foundations as a result of the application of national legislation – is new but, in my view, understandable in the specific context of the present case. Perhaps the specific nature of a family foundation’s activities played a role in the CJ’s willingness to frame the restriction in liquidity terms, a line of reasoning that may be more persuasive for foundations – with their long-term investment and asset-preservation purposes – rather than for inheritances received by natural persons.

Furthermore, the CJ considered the situation of a resident founder gifting to a German foundation comparable to a resident founder gifting to a foreign foundation (comparatio ratione personae). For this assessment, the Court focused on how Germany exercises taxing rights on domestic and cross-border inheritance and concluded – correctly in my view – that the situations are objectively comparable. In any case, I observe that when discrimination occurs by the home EU Member State (in our case the EU Member State of the donor’s residence), finding objectively comparable situations is easier, as that EU Member State taxes on a worldwide basis given the donor’s residence unless the objective of the national legislation renders the two situations not objectively comparable, even though the home EU Member State exercises taxing rights in both cross-border and the hypothetical inheritance or donation; see CJ 18 December 2014, C‑133/13 Q, ECLI:EU:C:2014:2460.

Justification: Coherence of the Tax System

After concluding on comparability, the CJ assessed the sole justification ground presented by Germany – the coherence of the tax system – and accepted it. In essence, German legislation is justified by the coherence of the tax system because the advantage (preferential tax class privilege) is subsequently offset by a particular tax charge, the Erbersatzsteuer, and there is a direct link between these two in light of the objective pursued by the legislation in question.

The Erbersatzsteuer is a substitute inheritance tax and is applied to family foundations in Germany to replicate the effect of inheritance tax over time, since assets placed in a foundation do not pass through generations in the usual manner. This mechanism ensures that foundations do not permanently avoid inheritance taxation by holding assets indefinitely (Familienstiftung, para. 57). The tax is calculated based on the current value of the foundation’s assets at thirty-year intervals. By doing so, it creates a fictitious inheritance event to simulate the transfer of assets through successive generations.

The parliamentary history of the legislation demonstrates a clear link between the preferential gift tax treatment of German family foundations and the subsequent application of the Erbersatzsteuer (Familienstiftung, para. 26). Essentially, the preferential treatment granted at the time of the asset transfer is balanced by the later imposition of the substitute inheritance tax – reflecting a logical symmetry, as also accepted by the Court (Familienstiftung, para. 70). By contrast, in a cross-border context involving a foreign foundation, Germany lacks jurisdiction to levy the Erbersatzsteuer, and accordingly, the tax class privilege is limited exclusively to German family foundations.

The Court’s reasoning – at this point – is persuasive: there is an identified advantage (preferential tax class privilege), a corresponding disadvantage (the substitute inheritance tax), and a direct link between the two, both in legislative objective and application, relating to the same taxpayer (the family foundation), regardless of the fact that the advantage relates to gift tax and the disadvantage relates to inheritance tax based on a fictitious inheritance event. I do not consider this final element problematic, given the similarities between inheritance tax and gift tax in terms of both application and underlying objective, with gift tax being regarded as complementary to inheritance tax in many jurisdictions.

Interestingly, the Court considered that the Erbersatzsteuer is not uncertain in nature, as it is levied every 30 years (Familienstiftung, para. 71). In my view, this assessment belongs more properly to the proportionality analysis. The more relevant question at this stage is whether the application of the Erbersatzsteuer becomes uncertain if the foundation is dissolved within the thirty-year period following the transfer of assets – an issue that I examine in the next section of this note.

Proportionality Assessment: The Uncertainties Regarding Erbersatzsteuer Do Not Put At Risk The Proportionality Of The Tax Class Priviledge

In its proportionality assessment, the CJ addressed possible uncertainties relating to aspects of levying the Erbersatzsteuer and examined whether they undermine the proportionality of the tax class privilege.

Uncertainty regarding the taxable base: This concerns whether the taxable base of the Erbersatzsteuer corresponds to the assets that initially benefited from the tax class privilege when the founder contributed them to the foundation.

According to the CJ, this need not be the case, as the foundation’s assets may fluctuate during the thirty-year period. The Court considered that this does not undermine the suitability of the scheme because family foundations are generally intended to ensure long-term financial security for the family and preserve family wealth (Familienstiftung, para. 74). I cannot recall a similar case in which the CJ required that the later levy (the disadvantage) be imposed on exactly the same assets that benefited from the initial preferential treatment. In any case, this appears to be a rather relaxed approach from the CJ.

Uncertainty regarding the amount of the levy: This concerns a situation in which, for example, the founder contributes assets worth € 100 to the foundation, but after 30 years, these assets are worth only € 10. The tax class privilege applies to the initial € 100, while the substitute tax applies to € 10. There is clearly no per-saldo symmetry between the privilege and the substitute tax. However, the CJ did not find this problematic. It reasoned that since: a) the tax rate applied to resident family foundations at the time of establishment corresponds to the normal tax rate for gifts made between persons with a family relationship (reflecting the objective of placing those foundations on an equal footing with ordinary inheritances), and b) the substitute inheritance tax follows the same logic, the advantage obtained when setting up a resident family foundation corresponds to the future disadvantage of having to bear the substitute inheritance tax (Familienstiftung, para. 75).

I find this reasoning somewhat unconvincing. I am not entirely convinced by the statement that ‘the substitute inheritance tax follows the same logic’ which seems to refer to the way gift tax is levied upon the initial transfer of assets to the foundation. In reality, the Erbersatzsteuer is levied every 30 years on the current value of the foundation’s assets, regardless of the original tax class or the founder-beneficiary relationship. It is designed to mimic an inheritance event, not to replicate the original gift tax conditions.

Uncertainty when the foundation is dissolved within 30 years from the initial transfer of assets: A third uncertainty – not discussed in the judgment but mentioned in the German referring decision – concerns the possibility that a German family foundation may not exist for the full thirty-year period following the initial transfer of assets (The referring decision of the Finanzgericht Köln is available here: https://curia.europa.eu/juris/showPdf.jsf?text=&docid=284962&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=1672640 As far as I understand, German law does not provide for an interim substitute levy upon liquidation of the foundation. Therefore, if the foundation is dissolved before the thirty-year term expires, no Erbersatzsteuer is levied, as the fictitious inheritance event is tied exclusively to the thirty-year cycle and not to liquidation. Any distribution of assets upon liquidation is treated as a taxable gift and taxed according to the applicable tax class.

This raises the question, is this later gift taxation able to negate the tax class privilege? In my view, no – because we are dealing with a different transfer of property that appears unconnected with the initial one. The ‘logical symmetry’ mentioned by the Court applies only to the link between the initial advantage and the Erbersatzsteuer, which is, however, not levied if the foundation is dissolved earlier than 30 years.

To illustrate, consider a founder who transfers € 1,000,000 to a German family foundation. At the time of establishment, gift tax is levied under Class I (as the beneficiaries are close relatives), with a tax rate of 19% and an allowance of € 200,000. Ten years later, the foundation is dissolved and distributes € 1,200,000 (reflecting asset growth) to the beneficiaries. This distribution is treated as a new gift and taxed under Class I, applying the same rate and allowance with the initial transfer to the foundation from the founder. No Erbersatzsteuer is triggered because the thirty-year cycle has not elapsed.

Consequently, the initial advantage remains intact, and the subsequent gift tax does not seem to be connected with that initial advantage. In this respect, symmetry seems to fail: the system does not ensure that the initial benefit is neutralized when the foundation dissolves before the 30 year period.

Therefore, in my view, there is a structural weakness in the Erbersatzsteuer system: there is no guarantee that the later levy will always neutralize the initial advantage. This holds, even though the German scheme does not systematically result in significantly higher tax burdens for transfers to non-resident family foundations (Familienstiftung, para. 79).

Dr. Vassilis Dafnomilis