The subject-to-tax provision of the Parent-Subsidiary Directive, whereby distributed dividends are exempt from withholding tax, requires that the dividends are taxed in the hands of the parent company. In practice, this necessitates actual payment of the tax. Continue reading
Tax & Legal
The Federal Finance Ministry issued a decree dealing with the Value Added Tax situation for the public sector as revised in the course of the Tax Amendment Act 2015. Continue reading
In December 2016 the Finance Ministry issued a decree dealing with the tax implications of privately used comapny cars in case of a leasing, whereby also commenting on an earlier judgment of the Supreme Court on a so called “government lease”. Continue reading
On November 17, 2016 a new law came into force providing for tax incentives (income tax / employee withholding tax) in the area of electrical mobility, namely for electric-powered cars and hybrid vehicles. The Federal Finance Ministry has issued a decree dealing with Details of the new regulation. Continue reading
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. Continue reading
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. Continue reading
In this issue: PwC Reports, Official Pronouncements and Supreme Tax Court Cases. Continue reading
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.
The new rules represent a significant change for corporations in the tax treatment of loss utilisation. Previously a corporation’s unutilised losses could be subject to (partial) forfeiture, where there was a change in the shareholder ownership above certain levels (“harmful change of ownership”). A new provision has now been introduced into the Corporation Tax Act, according to which it is possible to apply for relief from the forfeiture of tax losses after such a harmful change in ownership.
Strict conditions for the application of the rule
An application under the new provision can only be successful, to the extent that the corporation has maintained exclusively the same business since the corporation was established or at least has maintained exclusively the same business in the last three periods of assessment before the period of assessment in which the harmful change of ownership arose. Furthermore during this period the corporation cannot have been a controlling enterprise in a tax consolidation group (“Organträger”) nor can it have held an interest in a commercial partnership.
In addition to the above, the provision lists a number of harmful events; where any of these harmful events have occurred in the above mentioned three year period, the corporation will not be entitled to the relief.
The relief from tax loss forfeiture does not apply to losses which were incurred in a period prior to a previous discontinuance or dormancy of the business. This would apply, in particular, to situations where the corporation had discontinued its business in the past and then started a new business.
The corporation must apply for application of the relief in its tax return for the period of assessment in which the harmful change of ownership occurred.
Earmarked loss carry-forward
The whole of the loss carry-forward available at the end of the period of assessment in which the harmful change of ownership occurred, will become an earmarked loss carry-forward. It may be set off against profits arising in future years subject to the rules of minimum taxation.
Any earmarked loss carry-forward which has not already been utilised will be forfeit if the business is discontinued or if any of the harmful events listed in the provision occur. In such a case, the corporation will be able to retain the earmarked loss carry-forward to the extent that the corporation has hidden reserves. This only applies however to hidden reserves which existed at the end of the period of assessment, which preceded the period of assessment in which the harmful change of ownership occurred.
Other important conditions
- The earmarked loss carry-forward must be separately declared and assessed.
- The provision will apply to harmful changes of ownership, which occur after 31 December 2015.
- No application for non-forfeiture may be made for “old” losses incurred in periods prior to a discontinuance or dormancy of the business. In the case of a discontinuance or dormancy occurring prior to 1 January 2016, it may not be possible to allocate the losses properly as these events may have occurred far back in the past. Accordingly an application for non-forfeiture is completely excluded in these cases.
- The provision also applies accordingly to any interest carry-forward and to any loss carry forward for trade tax purposes.
here an entrepreneur undertakes to enter into a tenancy (landlord and tenant) for a consideration, the supply is tax exempt according to Section 4 No. 8 (g) VAT Act. Continue reading
There is no addback for trade tax purposes for amounts paid by a German company arranging for participation in foreign trade fairs on behalf of others. Continue reading