Technical article

Germany: The Yearly Attribution Rule, and What the 2024 Court Ruling Changed

Each year the income and assets of such a body are attributed to a settlor who is a German resident.

By Neil Solomon · 3 min read

Picture a couple living in Hamburg who are the settlors of a foundation or trust in another country. It holds shares and bank deposits. The trustees pay nothing out for six years, because the family does not need it. Does Germany see any income in those six years?

The sources say yes, in many cases. The rule is in section 15 of the foreign-tax act, and it works without any payment.

How the rule works

A foundation or trust counts as a foreign family foundation when its place of management and its seat are both outside Germany, and the settlor, relatives and descendants hold more than half of the benefit or remainder rights. The statute puts other asset pools, trusts among them, on the same footing.

Each year the income and assets of such a body are attributed to a settlor who is a German resident. If the settlor is not, they go to German-resident beneficiaries, in proportion. No payout is needed. The rule does not apply to inheritance tax.

Attributed income is taxed as capital income. The flat rate of 25% applies only where it would apply to income the person received directly. A solidarity surcharge of 5.5% of the tax is added to that flat rate, which makes 26.375%. Church tax is extra if the person belongs to a church. Foreign tax the foundation has paid is credited. Losses are not attributed.

A later payout of income already attributed is not taxed a second time. A payout that was not attributed first is taxed as capital income at 25% of the full value, corpus included, plus the same surcharge.

The escape, and what changed in 2024

The statute has a way out. It applies when the assets have been legally and in fact removed from the control of the settlor and the beneficiaries, and the other country exchanges information with Germany. Until recently the way out was limited to trusts in the EU and the European Economic Area.

On 3 December 2024 Germany's federal tax court ruled that this limit breaks the free movement of capital. The way out now applies to non-EU trusts as well. The court also rejected the tax office's economic approach and kept a test based on civil law.

Only assessments that are still open can use the ruling for past years. It does not apply where the income comes through subsidiary companies.

The 2025 draft

A finance ministry discussion draft dated 18 November 2025 would reshape the rule. According to a tier B summary, it would limit the attribution to low-taxed income, add a test for artificial arrangements, widen the family concept, replace the loss-of-control escape with that new test, and extend the escape to third countries. The draft is a proposal only. It has not been enacted in the sources.

You might say: "A foreign trust where I have given up control belongs outside German tax. How can Germany attribute something I do not receive?" Many people feel that. The statute answers by treating the family as the economic owner while any of them can benefit. The 2024 ruling helps where control has passed in law.

You could look at three things when thinking about such a trust. Whether the trust deed leaves any control with the family. Whether the country where it sits exchanges information with Germany. Whether the draft changes the picture by the time you decide.

The people this touches are the settlor, the beneficiaries who live in Germany, and the trustee, who may be asked for figures.

If you have lived with this rule, what did the yearly return look like for you? Share it here, because someone else may find your answer useful.

Figures are estimates for planning, based on public data. Date read: October 2026.