Five years of extended unlimited tax liability: Article 4 paragraph 4

Content and purpose of the rule

The second special rule of the convention is directed at the move itself. Under Article 4 paragraph 4, Germany may tax an individual resident in Switzerland who does not hold Swiss nationality and whose unlimited German tax liability, having lasted at least five years in total, ended with the move. The German taxing right covers the year in which unlimited liability ended and the five following years. It extends to income from German sources and to capital situated in Germany, irrespective of the limits that the other articles of the convention would otherwise impose. Germany credits the Swiss tax on that income in accordance with the method article.¹ The provision, sometimes called the Abwandererklausel or emigrants’ clause, is also treated as a second form of überdachende Besteuerung. Commentators summarise its conditions as follows. The taxpayer must not be a Swiss national and must actually have become resident in Switzerland. He must have been subject to unlimited German tax liability for at least five years before his departure and must not have moved in order to take up genuine dependent employment in Switzerland. They also refer to a further exception for persons who move to Switzerland because of marriage to a Swiss national, whose basis in the treaty materials is not beyond doubt.²

The purpose of the rule is transparent. Wealthy Germans may draw German-source income, such as dividends from German companies, rents from German property or remuneration as managing director of a German company. The rule removes their incentive to move to Switzerland for a few years in order to benefit from lower Swiss tax on that income. The employment exception shows where the negotiators drew the line. A German engineer who accepts a position with a Zurich insurer is not the target of the rule. A German entrepreneur who moves to Zurich while continuing to draw a salary and dividends from his family company in Swabia is. Since the rule applies only to German-source income and capital, the entrepreneur’s Swiss income and income from third states fall outside it, although they may be relevant under German domestic law for the progression of the tax rate.

The Bukovansky judgment of the Court of Justice

Because the rule distinguishes by nationality, it was bound to be tested against the Agreement on the Free Movement of Persons between Switzerland and the European Union of 21 June 1999. The test came in the case of Roman Bukovansky, a German and Czech national who had worked in Germany for the subsidiary of a Swiss pharmaceutical group. He moved his residence to Switzerland in August 2008 and continued to work at the German site as a so-called reverse cross-border commuter. The Finance Court of Baden-Württemberg considered that the application of Article 4 paragraph 4 to him might infringe the free movement agreement and referred the question to the Court of Justice of the European Union by order of 19 December 2013.³

The Court of Justice rejected the challenge by judgment of 19 November 2015. It held that the free movement agreement does not prevent the contracting states of a double taxation convention from using nationality as a connecting factor for the allocation of taxing powers. The choice of different connecting factors does not in itself constitute prohibited discrimination. Mr Bukovansky had not been treated less favourably than a German resident, since Germany credited the Swiss tax on the income it taxed under the rule.⁴ The judgment confirmed that the free movement agreement, whose Article 21 leaves the double taxation conventions of the member states with Switzerland unaffected, offers little protection against the special rules of the German–Swiss convention. The same agreement proved more effective in the field of exit taxation, as will be seen below.

Swiss nationality as an exit

Article 4 paragraph 4 applies only to persons who do not hold Swiss nationality. A German who has lived in Switzerland for many years and becomes a Swiss citizen therefore escapes it. Naturalisation has become more attractive for Germans since the reform of German nationality law in force since 27 June 2024, which generally permits multiple nationality.⁵ The practical relevance of naturalisation for the five-year period is limited, however, because the Swiss federal law requires ten years of residence before a person may apply for ordinary naturalisation. By that time the five-year period has long expired. Naturalisation is more important for the inheritance tax, where German nationality continues to matter for longer, and for the extended limited tax liability under § 2 AStG, which applies only to German nationals.

Notes

1. NWB Datenbank, “DBA Schweiz Artikel 4 Ansässige Person”, cited above, reproducing the text of Article 4 paragraph 4, which also excludes from its scope persons who became resident in Switzerland in order to take up “eine echte unselbständige Arbeit” there. ↩
2. anwalt.de, “Überdachende Besteuerung Schweiz: EuGH wird entscheiden”, https://www.anwalt.de/rechtstipps/ueberdachende-besteuerung-schweiz-eugh-wird-entscheiden_069968.html. The author of the article, who is not named on the page, expresses doubts about the legal basis of the marriage exception. ↩
3. Betriebs-Berater, “‘Überdachende Besteuerung’ gemäß Art. 4 Abs. 4 Satz 1 DBA-Schweiz europarechtswidrig? Vorlage an den EuGH”, reporting FG Baden-Württemberg, order of 19 December 2013, 3 K 2654/11, registered at the Court of Justice as case C-241/14, https://betriebs-berater.ruw.de/steuerrecht/urteile/ueberdachende-Besteuerung-gemaess-Art.-4-Abs.-4-Satz-1-DBA-Schweiz-europarechtswidrig-Vorlage-an-den-EuGH-24101. ↩
4. Betriebs-Berater, “Überdachende Besteuerung unionsrechtskonform”, reporting CJEU, judgment of 19 November 2015, C-241/14, Bukovansky v Finanzamt Lörrach, https://betriebs-berater.ruw.de/steuerrecht/urteile/-ueberdachende-Besteuerung-unionsrechtskonform-28511. ↩
5. Gesetz zur Modernisierung des Staatsangehörigkeitsrechts (StARModG) of 22 March 2024, BGBl. 2024 I Nr. 104, published 26 March 2024, https://www.recht.bund.de/bgbl/1/2024/104/VO.html (date and publication confirmed there). Entry into force on 27 June 2024 and multiple nationality as the rule: Bundeszentrale für politische Bildung, “Reform des Staatsangehörigkeitsrechts”, 19 July 2024, https://bpb.de/kurz-knapp/hintergrund-aktuell/550624/reform-des-staatsangehoerigkeitsrechts/ (“Der Erwerb der Mehrstaatigkeit wird als Regelfall ermöglicht”). Even before the reform, § 25 para. 1 sentence 2 StAG in the version then in force exempted Germans who acquired the nationality of another EU member state or of Switzerland from the loss of German nationality. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.