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. In a decision of the Supreme Tax Court published on 19 December 2018, the Court held that the term “income” in this context applied to both positive and negative income. Thus, provided that the other conditions set out in Section 50d (9) have been met, losses, which were originally excluded as tax-free treaty income, could, be deducted from domestic taxable income, regardless of the treaty. Continue reading
Tax & Legal
At the beginning of November 2017 the Federal Finance Ministry published the long-awaited circular on its intended application of the rules (Section 50a Income Tax Act)applying to limited taxpayers and withholding tax on cross-border licensing of software and databanks. Continue reading
The first automatic exchange of financial accounts information between Germany and 49 other states according to the OECD Common Reporting Standard commenced on 30 September 2017. Continue reading
On 20 December 2016 legislation was passed introducing measures to combat base erosion and profit shifting. A part of this legislation – introduced in the new Section 138a of the General Tax Code – imposed an obligation on multinational enterprises to report annually for each tax jurisdiction in which they do business, so-called Country-by-Country (CbC) reports. On 11 July 2017 the German Ministry of Finance released a circular, which provides some guidelines on the completion of the CbC reports. Continue reading
On 7 June 2017 Germany together with the representatives of over 60 countries signed the multilateral convention, which should transpose the main recommendations of the G20/OECD Project against Base Erosion and Profit Shifting (BEPS Project) into existing bilateral tax treaties. Continue reading
In its sitting on 2 June 2017 the Bundesrat (the Upper House) approved the Act to Combat Harmful Tax Practices in connection with the Licensing of Rights. The new legislation is intended 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. The new provision should be applied to expenses arising after 31 December 2017 and is to be introduced by way of a new provision in the Income Tax Act (ITA). Continue reading
In its sitting on 2 June 2017 the Bundesrat (the Upper House) approved the legislation which the government introduced at the end of last year following the publication of the Panama Papers. Continue reading
Payments made to a purchaser to compensate for a poor economic position following the transfer of an interest in a partnership may not be deducted from the domestic tax base to the extent they are attributable to a foreign branch (i.e. a permanent establishment for tax treaty purposes) of the partnership. In its decision the Supreme Tax Court cited a decision of the European Court of Justice (ECJ) from 2015. Continue reading
The tax authorities have now published the final Ministry of Finance circular answering questions in connection with the application of the exchange of financial information and the FACTA agreement. The draft versions of the circular had previously been released and these are now in a final version.
In the fight against cross-border tax evasion and other practices showing a lack of discipline for tax purposes, the OECD has developed a standard for the automatic exchange of information on financial accounts (CRS – Common Reporting Standard). On 29 October 2014 Germany committed itself – in conjunction with numerous other countries – to implement a system for exchange. The CRS obliges financial institutes to report to the German tax authorities information on financial assets, which are managed in participating countries on behalf of taxpayers. This information is exchanged between the tax authorities of participating states.
The conclusion of the so-called FACTA agreement between the USA and Germany on 31 May 2013 also introduced rules on the automatic exchange of tax relevant data from financial institutes. This was also intended to induce more honesty in tax matters cross-border.
The Ministry of Finance has now produced a 96 page document to clarify the various issues.
Ministry of Finance circular of 1 February 2017 (IV B 6 – S 1315/13/10021:044), published on the Ministry’s home page on 3 March 2017
The federal government and federal states have agreed unanimously upon the criteria for a revision of the tax treatment of existing cum/cum structures. The tax authorities of the federal states could then – according to comprehensive and standardised criteria – attack cum/cum transactions, which were executed before the change in the law as at 31 December 2015.
The agreement was reached when the heads of the tax departments of the respective federal and states Ministries of Finance met in Berlin between 1 and 3 March 2017. A new Ministry of Finance circular will be prepared to implement the decision. The existing Ministry of Finance circular of 11 November 2016 will continue to apply to the beneficial attribution of securities transactions.