Tax & Legal

The finance ministry has published a draft of its ordinance on permanent establishment profits following the authorised OECD approach.

The requirements for a permanent establishment pursuant to Section 12 sentence 1 German Fiscal Code, which are also characteristic for the concept of a permanent establishment under the double tax treaty with the United Kingdom, are met if the person providing the service (here: an aircraft mechanic/engineer) is given only restricted use of site-related business facilities (here: locker and safe deposit box in common rooms on the airport premises) in the course of his services (here: maintenance work on aircraft). This was decided by the Supreme Tax Court in a most recent judgment.

The owner of a business has a permanent establishment at the fixed place of business of his client if he continuously works there, even if he has his own permanent establishment at a different place. After the revision of the tax law on travel expenses as of 2014, the first place of work is primarily determined based on the employee's contractual assignment or by internal instructions of the employer.

On 13 February 2026, the Federal Ministry of Finance (MoF) sent a comprehensive draft circular on the principles applied by the tax administration regarding the concept of a permanent establishment and the establishment of a permanent establishment in domestic and international tax law to interested associations for comment by 13 March 2026. The circular aims to systematically present the factual requirements for a permanent establishment under Section 12 of the General Tax Code (GTC) that are relevant for the application of numerous income tax regulations and to clarify the relationship to the concept of a permanent establishment under treaty law in accordance with Article 5 of the OECD Model Tax Convention. The circular takes comprehensive account of the current case law of the Supreme T ...

The European Court of Justice (ECJ) ruled that the reverse charge is applicable to the leasing of real property located in Austria because the Jersey based lessor, in lieu of own local staff to perform services relating to the letting, does not have a permanent establishment (fixed place of business) in Austria.

A foreign permanent establishment of a legally independent person resident in Germany cannot be viewed as employer. This was decided by the Supreme Tax Court in a recent judgment regarding the double tax treaties with the Netherlands, Japan, the UK, Spain, Australia, Ireland, Belgium, Switzerland, Italy, Denmark, Canada, Singapore, Norway, Greece and France.

The trade tax allocation of permanent establishments extending over more than one municipality ("multi-municipality permanent establishments") must by way of typification consider the specific character and nature of the permanent establishment and the interests of the municipalities involved. The Supreme Tax Court held that, in the case of permanent establishments constituted through a natural gas pipeline, the volume of natural gas supplied in the respective communities can be a suitable approach for allocation of the trade tax.

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.

The ECJ has confirmed a German provision for the recapture of foreign branch losses previously deducted on sale of the foreign permanent establishment.

The Supreme Tax Court has held that a taxpayer cannot deduct costs incurred in preparing for a foreign permanent establishment even if, in the event, the establishment never came into existence.

The Supreme Tax Court has ruled that where a limited taxpayer has no permanent establishment (branch/permanent representative) located in Germany, the add-back of fictitious business expenses cannot be applied.

On 19 November 2025, the OECD published an update to the OECD Model Tax Convention and the corresponding commentary on Article 5 regarding permanent establishments. The new guidelines specify the circumstances under which a home office is considered as permanent establishment.

The Supreme Tax Court has held that the corporation tax rate on the permanent establishment income of non-EU foreign companies under the old, pre-2001 system was acceptable under community law and the double tax treaty.

In a decision published today, the Supreme Tax Court held that Section 1 (5) Foreign Tax Act does not constitute an independent rule for determining permanent establishment profits. General allocation methods such as the cost-plus method require a clear legal basis - otherwise they are inadmissible.

The Supreme Tax Court held, in a decision published on 19 October 2016, that the term “permanent establishment” set out in Section 9 No. 3 of the Trade Tax Act should follow the domestic law definition and not the tax treaty definition.

In two decisions, the Supreme Tax Court has defined in more detail the requirements for a foreign permanent establishment in cross-border situations under a double tax treaty (DTT). If such a treaty exists, double taxation is usually avoided by exempting the foreign branch income from German tax.

The Supreme Tax Court has upheld the German rule providing for immediate taxation (but with a deferral option) of the transfer of a roll-over provision to be held as a fixed asset of a permanent establishment in another member state.

The Supreme Tax Court has held that the profit from the release of a provision no longer required arising from a foreign permanent establishment long after closure falls under the business profits clause of the relevant double tax treaty and is thus taxable in the foreign country.

In a reference for a preliminary ruling from the UK Upper Tribunal the European Court of Justice (ECJ) is asked whether the immediate tax charge on a transfer of assets from a UK resident company to a sister company resident in Switzerland (which does not carry on a trade in the UK through a permanent establishment) contrasts with EU-Law (Article 49 TFEU or Article 63 TFEU).

A Danish company may set off the final losses of its foreign EU-permanent establishment against its own taxable income, provided it can prove that the losses incurred are final and the company has exhausted the possibilities to deduct those losses in that Member State.