Tax & Legal

Tax & Legal

Proof of payment of foreign wage taxes by employer’s certificate sufficient

An employer’s certificate is sufficient for the proof of taxation of wages in India in order to claim tax exemption under the relevant terms of the Double Tax Treaty between Germany and India. The submission of an official income tax assessment notice is not mandatory for claiming the exemption under the subject-to-tax clause of the German Income Tax Act. Continue reading

Issue of shares as part of corporate action (spin-off)

The Lower Tax Court of Lower Saxony ruled that the allocation of shares in the course of a restructuring of Hewlett-Packard Company meets the requirements of a spin-off within the meaning of Sec. 20 (4a) Sentence 7 of the German Income Tax Act. Thus, there is no taxable distribution in kind at the time of the share allotment. Continue reading

Retroactive financial integration in case of change in shareholding during the year?

A continuous and retroactive financial integration is also possible where a change in shareholder takes place during the year. The Lower Tax Court of Duesseldorf held that a fiscal unity or tax consolidation group for corporation income tax may be established already for the whole year in which the exchange of shares took place. In its judgement the court disagrees with the tax authorities’ official opinion on this issue. The Supreme Tax Court is now in charge and must finally decide the dispute.
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No trade tax add-back of rental costs allocated to production costs of current assets

Rental and lease payments for the use of movable fixed assets are not to be added back to trading profits in accordance with Section 8 No. 1 Letter d Trade Tax Act (TTA), insofar as they are to be attributed to the costs for the production/manufacture of current assets. This will also be the case in situations where the rent and lease payments would have been capitalized as production costs, had the asset still been included in the business’ assets as at the balance sheet date and therefore had to have been capitalized. This was decided by the Supreme Tax Court in a ruling published on 12 November 2020. Continue reading

No obligation to file electronic tax returns where economically unreasonable

In a decision of the Supreme Tax Court published on 12 November 2020, the Court held that the electronic filing of an income tax return may be considered unreasonable from an economic point of view, where the cost of setting up and maintaining a system for the transmission of remote data bears no meaningful economic correlation to the income triggered by the obligation to file the tax returns electronically   Continue reading

Waiver of exit tax upon return to Germany

According to Section 6 (1) of the Foreign Taxes Act (FTA), where a taxpayer’s unlimited tax liability ceases through the taxpayer giving up his German residence/habitual abode, any material shareholdings held in his private property will be deemed as disposed of even without a sale and any capital gain on the deemed disposal will be taxable under Section 17 (1) of the Income Tax Act (ITA). Section 6 (3) FTA provides for this so-called exit tax to be subsequently waived in certain circumstances. The Münster Tax Court held that in addition to the (objective) re-establishment of the unlimited tax liability (i.e. the re-establishment of the German residence/habitual abode), it was also necessary for the taxpayer to provide credible evidence that the will to return existed (subjectively) upon departure. Continue reading