Tax & Legal

The right to tax carried interest (i.e. the additional share of profits disproportionate to the capital invested) is vested in the country of residence either under Art. 21(1) Double Tax Agreement-USA (“DTA-USA”) (Other Income) or under Art. 13(5) DTA-USA (Capital Gains) if the corresponding income constitutes income from asset management and not income from business activities. In a recent decision, the Schleswig-Holstein Tax Court ruled on the treaty qualification of the carried interest received by a German resident shareholder (the intervenor) of a limited liability company established under the law of the US state of Delaware with its registered office and place of management in the US (the claimant).

Following a referral from the Federal Constitutional Court, the Supreme Tax Court has again had to rule on the income adjustment pursuant to Section 1 (1) Foreign Taxes Act vis-à-vis the write-down of an unsecured loan receivable issued within a group

On 24 March 2021, a government draft bill aiming to implement the Anti-Tax Avoidance Directive (ATAD) passed the cabinet (in the following referred to as “Draft”) after lengthy political efforts.

The last version of the Italian Budget Law 2019 has been published in the Gazzetta Ufficiale from the 31. December 2018 and entered into force on the 1st of January 2019. The provisions include interesting innovations on the tax environment for taxpayers, both legal entities and natural persons.

Section 50d (9) Income Tax Act (ITA) excludes a tax exemption in Germany under a double tax treaty where, inter alia, the income is not taxed in the other treaty state.

At the beginning of November 2017 the Federal Finance Ministry published the long-awaited circular on its intended application of the rules (Section 50a Income Tax Act)applying to limited taxpayers and withholding tax on cross-border licensing of software and databanks.

On 20 December 2016 legislation was passed introducing measures to combat base erosion and profit shifting. A part of this legislation - introduced in the new Section 138a of the General Tax Code - imposed an obligation on multinational enterprises to report annually for each tax jurisdiction in which they do business, so-called Country-by-Country (CbC) reports.

On 7 June 2017 Germany together with the representatives of over 60 countries signed the multilateral convention, which should transpose the main recommendations of the G20/OECD Project against Base Erosion and Profit Shifting (BEPS Project) into existing bilateral tax treaties.

In its sitting on 2 June 2017 the Bundesrat (the Upper House) approved the Act to Combat Harmful Tax Practices in connection with the Licensing of Rights.

In its sitting on 2 June 2017 the Bundesrat (the Upper House) approved the legislation which the government introduced at the end of last year following the publication of the Panama Papers.

Payments made to a purchaser to compensate for a poor economic position following the transfer of an interest in a partnership may not be deducted from the domestic tax base to the extent they are attributable to a foreign branch (i.e. a permanent establishment for tax treaty purposes) of the partnership. In its decision the Supreme Tax Court cited a decision of the European Court of Justice (ECJ) from 2015.

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 FATCA agreement. The draft versions of the circular had previously been released and these are now in a final version.

The federal government and federal states have agreed unanimously upon the criteria for a revision of the tax treatment of existing cum/cum structures. The tax authorities of the federal states could then – according to comprehensive and standardised criteria - attack cum/cum transactions, which were executed before the change in the law as at 31 December 2015.

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.

In its last session of the year, the Federal Assembly (Bundesrat) gave its assent today to the Act to Implement the Amendments to the EU Mutual Assistance Directive and to Introduce Further Measures to Combat Profit Reduction and Profit Shifting