Tax & Legal

Tax & Legal

RETT-Blocker: Indirect unification of shares through an intermediary partnership

The Supreme Tax Court has decided that where an intermediary partnership holds direct or indirect interests in a real-estate-owning company, the relevant holding for establishing its interest in the related real-estate holding company, is its interest in the capital of the partnership and not the interest in the jointly owned property according to the law of property. Continue reading

Gift Tax : Benefit provided to person related to a shareholder

The Supreme Tax Court decided in three separate cases that the payment of excessive consideration under the terms of a contract between a GmbH and a party related to the shareholder is not a partial gift by the GmbH, if the shareholder was involved in the conclusion of the contract between the GmbH and the related party. In such a case the benefit granted arises from corporate relationship between the GmbH and the shareholder. With these decisions the Supreme Tax Court has changedn its earlier jurisprudence on this question. Continue reading

Assignment of players as gift to a football club

In a decision on 30 August 2017 the Supreme Tax Court held that where a third party provides his employees to a football club to serve as players, trainers or counsellors without receiving adequate consideration, the waiver of such compensation is to be considered as a taxable gift of the third party to the football club. Continue reading

Input VAT Refund: transmission of scanned invoice copies

Under the German VAT Implementation Regulations (Regulation 61 (2) 3rd Sentence – in the version valid until 29 December 2014), the condition that a “copy” of an invoice is to be attached to the input VAT refund application in electronic form, is met when the document which has been electronically transmitted is a faithful replication of the invoice. Continue reading

German exclusion from withholding tax relief in conflict with EU law? UPDATE

The German anti- treaty shopping rule denying full or partial relief from withholding tax, as otherwise prescribed under a double tax treaty or applicable EU directive, is questioned by the Lower Tax Court of Cologne as being in violation of community law. The question has been referred to the ECJ in number of cases. Continue reading

Commercial transactions between friends; recognition of losses

On 8 November 2017 the Supreme Tax Court published a decision made on 9 May 2017 on a case involving a gratuitous share transfer between friends, where the transferor had significant acquisition costs. The Court held that the presumption of a commercial transaction is not rebutted purely because a friendship exists between the contracting parties. Continue reading

Tax Consolidation Groups (“Organschaft”) for income tax purposes: Compensation payments to minority shareholders; failure to amend to “old agreements” of a GmbH following Section 302 (4) Stock Corporation Act.

According to a decision of the Supreme Tax Court published on 9 November 2017 a profit pooling agreement will not be recognised for tax purposes where the compensation agreement with the external shareholder contains both the right to a variable compensation payment calculated on the basis of the profits of the subsidiary/controlled company/”Organgesellschaft” (“subsidiary”) and a fixed amount. This also applies to subsidiaries in the form of a GmbH (i.e. limited companies as well as to public limited/stock companies (AGs)). The Supreme Tax Court also ruled that the requirement of Section 17 2nd Sentence No. 2 Corporation Tax Act (old version), according to which the assumption of losses was to be expressly agreed in the profit pooling agreement of a GmbH in accordance with Section 302 (4) Stock Corporation Act, was not only to be complied with at the time of conclusion of the agreement but also in each of the following years. It followed that those parts of the Section 302 regulation which had not entered into force at the time of the conclusion of the contract were also to be taken into consideration. Thus where a loss assumption agreement is not inserted into an “old” profit pooling agreement, (i.e. one concluded prior to the entry into force of Section 302 (4) Stock Corporation Act), in order to meet the requirements of the amended section and where this omission was not subsequently redressed under the amnesty rule, the Organschaft was no longer to be recognised for income tax purposes. Continue reading

Disposals of shares by limited taxpayers: no add-back of fictitious business expenses without domestic branch

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. Continue reading

VAT: Referrals to European Court of Justice on imputed taxation (“Sollbesteuerung”) and margin-scheme taxation.

Supreme Tax Court judges have expressed doubt both upon the previously uncontested obligation of entrepreneurs subject to the so-called imputed taxation (“Sollbesteuerung) to pre-finance VAT and upon the exclusion of the reduced VAT rate on the provision of holiday apartment rentals according to the so-called margin-scheme taxation. The Supreme Tax Court has therefore referred two cases to the European Court of Justice (ECJ) (i) referral of 21 June 2017: V R 51/16; and (ii) referral of 3 August 2017: V R 60/16. Continue reading