The Supreme Tax Court held that the commitment to enter a rental agreement is a VAT exempt service. Continue reading
Tax & Legal
The International VAT/GST Guidelines now published present a set of internationally agreed standards and recommended approaches to address the issues that arise from the uncoordinated application of national VAT systems in the context of international trade. The Guidelines were adopted as a Recommendation by the Council of the OECD in September 2016. Continue reading
The German Finance Ministry has commented on possible profit adjustments under Sec. 1 Foreign Tax Act with respect to the use of group name and logo between the taxpayer and a related party. Continue reading
In this issue: PwC Reports, Official pronouncements, Supreme Tax Court Cases and From Europe Continue reading
In light of global trading of multinational corporations the tax offices are in constant pursuit of stronger international tax compliance. The German Federal Finance Ministry has now issued guidelines on coordinated external tax audits with foreign tax administrations. Continue reading
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. Continue reading
A mere put option by the lessor at a favorable price does not necessarily lead to the attribution of economic ownership of the assets to the lessee. In its judgment the Supreme Tax Court once more confirms that economic ownership must be determined on a case-by-case basis. Continue reading
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. Continue reading
Profits arising from the sale of an interest in a partnership are not to be included in the extended trade tax deduction for real estate enterprises.
According to Section 9 no. 1 2nd Sentence of the Trade Tax Act (TTA), in place of the deduction under Section 9 No. 1 1st Sentence TTA (lump sum deduction of 1.2% of the assessed value of the real estate), enterprises, which exclusively manage and use their own real estate, may make an application to make an (extended) deduction relating to the part of the trading income which relates to the management and use of their own real estate.
B AG (a company) was initially the sole limited partner in the A KG (a limited partnership). In 2004 B AG sold a number of interests in its limited partnership holding and subsequently held an interest of 6%. In that year (2004) A KG managed a single logistics property in Hamburg Harbour. In its trade tax return for the year it declared total income from a trade, including the gains on disposals of the partnership interests made by B AG. An application was made for an extended deduction in the sum of the whole trading income.
The tax office argued that Section 9 No. 1 6th Sentence TTA explicitly excluded the deduction of gains on disposals of this type. A KG countered this argument by contending that Section 9 No. 1 6th Sentence TTA was introduced through a change in the law on 9 December 2014 but that the disposals of the partnership interests had been completed before the law came into force; a retrospective application of the provision would be unconstitutional. The Supreme Tax Court did not consider this argumentation, but rather came straight to the conclusion that the extended deduction (Section 9 no. 1 2nd Sentence TTA) did not apply in the first place.
According to the Supreme Tax Court the extended deduction provision applied solely to untainted income arising from the actual management of real estate (i.e. actually carried out) and not to gains arising from the disposal of a share in a partnership interest. These were operating profits. The reasoning given for this view was that when a partnership interest was sold in an enterprise which managed real estate, the consideration received was not as a rule just fixed in relation to the proportional share in the real estate. Rather the consideration also took into account the forecasted earnings, the potential increases in value and the opportunities to make profits. Accordingly the partial sale of a partnership interest did not amount to the mere exploitation of real estate but rather went beyond the management and use of own real estate.
Supreme Tax Court decision of 8 December 2016 (IV R 14/13), published on 15 February 2017.
The tax authorities have now published the final Ministry of Finance circular answering questions in connection with the application of the exchange of financial information and the FACTA agreement. The draft versions of the circular had previously been released and these are now in a final version.
In the fight against cross-border tax evasion and other practices showing a lack of discipline for tax purposes, the OECD has developed a standard for the automatic exchange of information on financial accounts (CRS – Common Reporting Standard). On 29 October 2014 Germany committed itself – in conjunction with numerous other countries – to implement a system for exchange. The CRS obliges financial institutes to report to the German tax authorities information on financial assets, which are managed in participating countries on behalf of taxpayers. This information is exchanged between the tax authorities of participating states.
The conclusion of the so-called FACTA agreement between the USA and Germany on 31 May 2013 also introduced rules on the automatic exchange of tax relevant data from financial institutes. This was also intended to induce more honesty in tax matters cross-border.
The Ministry of Finance has now produced a 96 page document to clarify the various issues.
Ministry of Finance circular of 1 February 2017 (IV B 6 – S 1315/13/10021:044), published on the Ministry’s home page on 3 March 2017