I shared my insights in the financial newspaper De Tijd about the preliminary draft bill concerning the new capital gains on financial assets. The question arises whether the new exit tax is contrary or not with EU tax law.

1️. Instalments over five years

– The draft bill provides for the possibility of payment of the exit tax in instalments over five years, in case of a transfer of a tax residence of an individual taxpayer to another EU Member State (new Articles 92, § 2 and 413/1, §1, 9° Income Tax Code).
☀️ In other words, the new draft bill does not provide for a tax deferral without interest until actual realization in EU (or EEA) cases.

– Similar exit tax rules have been introduced in Belgium in the area of enterprises (payment of exit tax in instalments prior to an actual realization of hidden reserves, implementation of ATAD).

2️. Exit tax in Germany (art. 6 AStG)

– Germany also provides for instalments over seven years (no tax deferral until actual realization) in case of departure of a natural person to another EU Member State.

– This new German exit tax rule (applicable since 2022) was considered to be compatible with EU tax law in the light of the ECJ case law (ECJ, 23 January 2014, C-164/12, DMC; ECJ, 21 May 2015, C-657/13, Verder LabTec).

3️. The ECJ Wächtler case and the liquidity issue

– German authors still argue that the German system is contrary to EU tax law, by referring to the Wächtler case (ECJ, 26 February 2019, C-581/17, Wächtler, more particularly n°68), and also a recent judgment of the German Bundesfinanzhof (BFH) on the German Exit Tax rules which were applicable before 2022 (BFH of 6 September 2023, case reference I R 35/20).

– In a nutshell, the BFH has ruled that the exit tax (Section 6 AStG, as applicable before 2022) must be deferred indefinitely and without interest when moving to Switzerland, by referring to the Wächtler case (n°68, according to which an immediate collection of the tax could lead to a cash-flow disadvantage, “Liquiditätsnachteil”).

4️. Obligation to introduce a tax deferral until realization?

Is Belgium obliged to grant a tax deferral until realization, in the light of the Wächtler case? This is not an easy one!

I am not so convinced. In the Wächtler case (n°68), the ECJ has in my view not clearly stated that the payment of the exit tax in instalments is contrary to the fundamental freemdoms. The ECJ mostly stated that “a denial of the possibility of deferring payment of the tax at issue” was contrary to EU tax law (n°65).

This will give rise to a lot of discussion in the comings week/months!

Denis-Emmanuel Philippe