Tax & Legal

    Tax & Legal

    Leaving the EU: Brexit and its impact on German businesses

    The time has come to say goodbye: Today UK Prime Minister Theresa May formally invoked Article 50 of the Lisbon Treaty thus initiating the formal negotiations for her country’s departure from the European Union. A PwC special report looks at the potential outcome with respect to tax, legal and people.

    The long and winding road: Trade Facilitation Agreement now in force

    A successful conclusion of a long negotiating process: The TFA, short for Trade Facilitation Agreement, entered into force on 22 February 2017 and brings along a number of improvements mainly in trading with developing countries. It is hailed as the greatest success since the founding of the WTO, the World Trade Organization, and shows the commitment of the members for a multilateral trading System.

    Federal cabinet approves new rules as part of the fight against money laundering and financing of terrorism

    On 22 February 2017 the federal government approved a draft bill to implement both the fourth EU money laundering directive and the EU regulation on the transfer of funds as well as to reorganise the Central Financial Transactions Investigation Agency. The intention is to up-date and strengthen measures developed to prevent money laundering and the financing of terrorism.

    The Central Financial Transactions Investigation Agency (“Zentralstelle für Finanztransaktionsuntersuchungen” – “FIU”) will be restructured and will obtain more staff

    Plans to restrict the deduction of royalty expenses to combat tax planning by international groups

    On 25 January 2017 the federal government approved a draft of the Act to Combat Harmful Tax Practices in connection with the Licensing of Rights. The intention is to prevent multinational businesses from transferring their royalty income to countries, which offer such income preferential treatment. Such preferential tax regimes (so-called Licence Boxes, Patent Boxes or IP-Boxes) are considered not to meet the demands of the OECD and G20 BEPS Project. A new provision is to be introduced to the Income Tax Act (ITA) for this purpose; the new provision should be applied to expenses arising after 31 December 2017.

    US corporate tax reform planned

    2017 seems to be the year for tax reform: There are currently major changes to the US tax system discussed that may also have a significant impact on German companies. German tax consequences of potential restructurings in response to the upcoming US tax reform must therefore be considered already at an early stage and the current developments be constantly monitored.

    Amendment of tax loss utilisation rules for corporations

    Under certain conditions, changes in shareholders and the admission of new investors will in future be possible without giving rise to a forfeiture of losses carried-forward. On 23 December 2016 the Act for the Further Development of Tax Loss Utilisation for Corporations was published after having been adopted by the German Parliament (Bundestag and Bundesrat) on 20 December 2016.


    German Government adopts bill to combat tax avoidance.

    On 21 December the German government adopted a bill to combat tax avoidance and to change certain other tax provisions. The Government’s main intention is to make it more difficult for German taxpayers to avoid tax by using letter-box companies. In addition to numerous provisions imposing obligations on the taxpayer to co-operate with the tax authorities, the bill abolishes the bank secrecy rules.

    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;