Germany: Draft tax law includes BEPS measures including CbCR requirements

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Germany: Draft tax law includes BEPS measures including CbCR requirements

Linn-Alexander
Braun-Thorsten-100

Alexander Linn

Thorsten Braun

Germany's Ministry of Finance has issued a draft tax law including measures based on the recommendations in the final reports issued under the OECD base erosion and profit shifting (BEPS) initiative and the amendments to the EU administrative cooperation directive to introduce country-by-country reporting (CbCR).

The draft law, issued on June 1 2016, also includes certain non-BEPS-related measures in response to judicial developments in cases where Germany's Federal Tax Court (BFH) decision went against the views of the tax authorities.

Proposed changes include:

  • CbCR: The proposed country-by-country rules would require multinational companies with consolidated group turnover of €750 million ($830 million) or more to file a country-by-country report including a 'master file' and 'local file' reporting requirement for transfer pricing documentation purposes under certain conditions.

  • Treaty override provision for the application of the arm's-length principle: In 2014, the BFH held that Germany's tax treaties can limit Germany's taxing rights based on section 1(1) of the Foreign Tax Act (FTA) if the treaty contains a provision equivalent to the associated enterprises article in the OECD model treaty and if the prices paid are at arm's-length. The draft law proposes to amend the FTA to eliminate this limitation.

  • Trade tax on income subject to controlled foreign company (CFC) rules: In 2015, the BFH held that passive income of a wholly-owned, low-taxed foreign subsidiary that is subject to the German CFC rules is not subject to German trade tax. The draft law would reverse the BFH's decision.

Another change would only allow exclusion of foreign passive income of foreign permanent establishments for trade tax purposes if the foreign permanent establishment (or partnership) is situated in the EU and has sufficient substance. This change is expected to restrict the use of certain IP structures where license income may not be subject to taxation for trade tax purposes.

The draft law includes the reestablishment of the trade tax on certain dividends distributed by a nonresident subsidiary to a German parent company that is a controlled entity in a German fiscal unity. The draft law would further clarify the application of the participation exemption for banks and financial institutions. Furthermore, the draft law includes amendments to the domestic switch-over and subject-to-tax clauses to prevent the non-taxation or the low taxation of certain items of income of a taxpayer that is subject to unlimited tax liability in Germany.

Alexander Linn (allinn@deloitte.de) and Thorsten Braun (tbraun@deloitte.de)

Deloitte

Tel: +49 89 29036 8558 and +49 69 75695 6444

Website: www.deloitte.de

more across site & shared bottom lb ros

More from across our site

The judgment, which saw Denmark's Supreme Court rely on OECD TP guidance, sets aside more than 15 years of consistent administrative practice, experts have told ITR
Belgium’s new coalition government has gone ahead with a new exit tax regime that could land it in the courts.
Brazil’s government has not officially framed the bill as a countermeasure amid trade tensions with the US, but the move is being considered as part of Brazil’s strategic response, one expert tells ITR
Understanding India’s income tax landscape can help charities ensure compliance, optimise tax benefits, and enhance their impact, writes Raghav Bajaj of Khaitan & Co
Tax advisers in Brazil are rising above the country’s notoriously complex tax system to deliver high-quality advisory services, ITR’s exclusive in-house data reveals
ITR’s data has highlighted the US firm’s ambition to become America’s ‘premier’ tax player via a concerted partner recruitment strategy
Jaap Zwaan’s arrival continues a recent streak of A&M Tax investing in the region; in other news, the US and Japan struck a deal that significantly lowered tariff rates
In a world where international tax concepts rely on human activity, Leonard Wagenaar poses existential questions about the future of such ideas when AI is ever-present
France v Axa provides a practical illustration of how the burden of proof is applied in TP matters under French law, ITR also heard
In an exclusive interview with ITR, Ian Gary calls for a central public CbCR database and bemoans the US’s lack of involvement in international tax transparency
Gift this article