Interpretation of new German rules adds to compliance for foreign holding companies
07 February 2012
Ralph Cunningham - ITR
The German Ministry of Finance has published an interpretative letter dealing with how the tax authorities intend to enforce revised anti-treaty shopping rules, which took effect on January 1.
Though practitioners believe the letter has clarified some ambiguities in the amended rules, for example, the reference to “gross receipts generated by own business activities”, which the authorities will interpret as meaning a foreign company’s entire gross receipts and not the German-source income for which relief can be claimed, they are uncertain that the new rules abide by EU law.
The revised rules were passed by the German Parliament in November 2011 in response to a request from the European Commission, which said the original rules breached the principle of freedom of capital and the EU Parent-Subsidiary Directive. The commission believed the requirement to prove the existence of the foreign company's own active business activity went beyond what was necessary to achieve the regulations' objective of preventing tax evasion.
The rules state that a foreign company that receives...
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