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European Union-Germany

16 January 2008

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ECJ: German transitional rules for taxation of capital gains incompatible with EC free movement of capital

On 18 December 2007, the European Court of Justice (ECJ) gave its decision in the case of Per Gronfeldt und Tatiana Gronfeldt v. Finanzamt Hamburg-Am Tierpark (C-436/06). The Finance Court of Hamburg had requested a preliminary from the ECJ on 20 September 2006  There was no Advocate General's opinion in this case.

The ECJ held that Art. 56 of the EC Treaty (free movement of capital) precludes the German legislation, by which the profits from a sale of shares in 2001 in a limited company established in another Member State are immediately taxable where the seller had held, either directly or indirectly, a share of at least 1% of the company's capital within the previous 5 years, whereas the profits from the sale of shares in 2001, in the same circumstances, in a German limited company subject to unlimited corporation tax were subject to tax only in the case of a substantial shareholding of at least 10%.

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