Tax & Legal

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    Tax & Legal

      Packet of measures against profit reduction and profit shifting: Federal Assembly (Bundesrat) responds.

      At a sitting on 23 September 2016, the Federal Assembly (Bundesrat) has responded 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 further measures. The packet of measures was confirmed by the Cabinet on 13 July 2016 and is intended to implement some of the recommendations of the BEPS (Base Erosion and Profit Shifting) Action Plan of the OECD and also to implement the amendments to the EU Mutual Assistance Directive. Originally conceived as a means of improving transparency in favour of the tax authorities, the draft Act contains numerous further amendments, which could have important implications for business. The Bundesrat’s recommendations and requests for review must now be reviewed by the government. A brief description of the most significant recommendations follows:

      Arbitration Committee agrees on Inheritance and Gift Tax Reform: Key Points.

      The Members of the Arbitration Committee of the Federal Parliament (Bundestag) and the Federal Assembly (Bundesrat) have reached a compromise on the inheritance and gift tax reform after a seven hour session going on late into the night. Here is a summary of the key points.

      A draft bill for the amendment of the Inheritance and Gift tax Act follow a decision of the German Constitutional Court in January 2015 has been in existence since 2015. On 24 June 2016 the Federal Parliament finally voted for the amendment after a long political process, only for the bill to be defeated in the Bundesrat, which called for the establishment of an arbitration committee. This committee has now arrived at a compromise, which must be confirmed by both the Bundestag and the Bundesrat. Here a summary:

      Further relief from curtailment of loss utilization planned

      The present curtailment of loss relief on changes of shareholders shall be modified to allow for a continued utilization of losses, provided the business operation does not change. The German government has taken the initiative and – for this purpose – agreed on a draft law. The respective draft was published on September 14, 2016.

      No trade tax loss carry-forward with merger of two-tier partnership

      In its decision of 12 May 2016 the Supreme Tax Court held that -in the case of a two-tier partnership structure- the trade tax loss carry-forward of the lower-tier partnership is fully eliminated, if the upper-tier partnership, which holds a 100% -interest in the income and assets of the lower-tier partnership, is merged down-stream and thus ceases to exist. Referring to previous case law, the Court’s reasoning was that the upper-tier partnership, as co-entrepreneur of the lower-tier partnership, was also the holder of the partnership’s trade tax loss-relief.