On 10 June 2021, the Bundestag approved the “Act to avert tax avoidance and unfair tax competition and to amend other laws”. In doing so, the Bundestag followed the recommendation of the Finance Committee.
The defence mechanisms contained in the bill (19/28901) are intended to make it more difficult for individuals and companies to avoid paying taxes in Germany through business relations with states and territories that are on the EU list of non-cooperative tax jurisdictions. The measures envisaged include, for example, the denial of tax benefits or deductions.
Following a ruling by the European Court of Justice (ECJ) earlier this year, the Supreme Tax Court held in its decision of 31 October 2019 that the incorporation into the tax base of controlled company income from invested capital from an intermediary company domiciled in Switzerland in the financial year 2006 may restrict the free movement of capital, but it is justified through compelling reasons of public interest and does not therefore contravene EU law. Continue reading
The European Court of Justice held that the German CFC regulations – as such – do not generally pose a restriction on the freedom of establishment. It is up to the referring court, however, to decide whether the legislation did in fact give the taxpayer the chance to prove that the terms were agreed on for commercial reasons resulting from its status as a shareholder of the non-resident company.
The Supreme Tax Court has held that a Dublin docks reinsurance company that subcontracted its operation under a management agreement was an active business within the meaning of the Foreign Tax Act.