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    Tax & Legal

      Federal Ministry of Finance publishes draft bill to combat tax avoidance


      The Federal Ministry of Finance has published its draft bill to combat tax avoidance and to amend further tax provisions. Through this draft bill, the prime goal of the Federal Government is to make it more difficult for domestic taxpayers to avoid tax through the use of an offshore company. In addition to increasing the taxpayer’s obligations to cooperate, the new draft also proposes an end to bank secrecy in tax matters. The cabinet will probably give its approval to the draft bill on 21 December 2016.

      Deadline for the filing of an application for recording at tax book values in the case of a contribution


      The Supreme Tax Court held, in a decision published on 27 October 2016, that:

      • In the case of a contribution and a share exchange, the transferee entity must file its application to be permitted to record the contributed asset at a value below its fair market value before it submits its “end-of-period tax balance sheet”(the term applied in Section 20 (2) 3rd Sentence of the Tax Reorganisations Act 2006). The term “end-of-period tax balance sheet” means the transferee’s end-of-period tax balance sheet for the period in which the date of the contribution fell.

      Impact of tax treaty definitions on domestic law


      The Supreme Tax Court held, in a decision published on 19 October 2016, that the term “permanent establishment” set out in Section 9 No. 3 of the Trade Tax Act should follow the domestic law definition and not the tax treaty definition.

      The taxpayer, a GmbH, carried on business as an import agent; specificaly it acted as the agent for another GmbH, sourcing all its goods from Turkey. The company had no other income source save for the provisions received. For this purpose, the taxpayer kept a purchasing office in Turkey.

      Tax neutral repayment of capital contributions by companies tax resident outside the EU also possible


      The transfer of shares to German-residents shareholder as part of a US spin-off generally constitutes investment income under Section 20 (1) No. 1 of the Income Tax Act (ITA); Section 20 (1) No. 1 Sentence 3 ITA is to be interpreted in line with EU law, so that companies resident outside the EU may also repay capital contributions on a tax neutral basis, even though they do not maintain a contributions account for tax purposes under Section 27 of the Corporation Tax Act (CTA).

      The Federal Assembly (Bundesrat) approves the Gift and Inheritance Tax Reforms


      In its committee meeting today (14 October 2016) the Federal Assembly (Bundesrat) approved the Gift Tax and Inheritance Tax reforms. With the majority approval of the Bundesrat, the new rules regarding the beneficial tax status of business heirs can be introduced.

      With this approval a long parliamentary saga comes to an end. Back in 2014 the Federal Constitutional Court called on the government to introduce new rules by 30 June 2016.

      Further information on the key points may be found here.

      Packet of measures against profit reduction and profit shifting: Federal Government responds to the Bundesrat’s comments.


      On 23 September 2016, the Federal Assembly (Bundesrat) gave its response to the draft of the Act to Implement the Amendments to the EU Mutual Assistance Directive and to Introduce Further Measures to Combat Profit Reduction and Profit Shifting (“the draft Act”) and proposed some further measures

      On 12 October 2016 the Federal Government gave its response to the Bundesrat. Among others the following suggestions of the Bundesrat were adopted:

      • Reintroduction of the taxation of short selling for private transactions;
      • Statutory definition of professional activity under Section 32d ITA to be defined further;

      German exclusion from withholding tax relief in conflict with EU law?


      The German anti- treaty shopping rule denying full or partial relief from withholding tax, as otherwise prescribed under a double tax treaty or applicable EU directive, is questioned by the Lower Tax Court of Cologne as being in violation of community law. The question has now been referred to the ECJ.