Congress on December 20, 2017 gave final approval to the House and Senate conference committee agreement on tax reform legislation that would lower business and individual tax rates, modernize US international tax rules, and provide the most significant overhaul of the US tax code in more than 30 years. President Trump signed the tax bill on 22 December 2017. Continue reading
Tax & Legal
The German Constitutional Court held that the rules for curtailment of loss relief on change of shareholders to be in breach of the formal provisions of the constitution under the principle of equal treatment insofar as changes of more than 25% and up to 50% of the shares in a company within a period of five years are concerned. 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 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
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
Previously the FIU was known as the Central Authority for Suspect Reporting (“Zentralamt für Verdachtsmeldungen”) at the Federal Police Department within the Ministry of the Interior. It will now be transferred to the General Customs Directorate, i.e. within the Ministry of Finance. Furthermore its responsibilities and competencies will be revised according to the provisions of the fourth EU directive on money laundering. One area of focus will lie in operative and strategic analysis.
In addition the FIU should, for the first time, have a filter function, the aim of which is to reduce the burden on the prosecution authorities. In future only credible suspicions should be passed on to the prosecutor.
Draft bill lays the foundations for a central electronic transparency register
This is intended to disclose information on the beneficial owners of an enterprise. The aim being more transparency and thus to hinder the abusive use of companies and trusts for the purpose of money laundering and offences underlying it, such as tax evasion and the financing of terrorism. The bureaucracy for businesses should however be kept at a minimum by the utilising information on any interests held already available in existing registers, such as the commercial register.
Penalty levels to be significantly increased
Penalties for serious, repeated and systematic offending are to be significantly increased to secure compliance with the money laundering regulations. Furthermore, in future the authorities will publish all penalty notices, which can no longer be disputed, on their website.
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
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.
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. Continue reading
On 25 January 2017 the German government published a draft bill proposing a restriction of tax relief on royalty payments made to related parties from 2018 onwards. Continue reading