The German tax legislator made only a few substantial changes to the tax rules relevant for international business during 2017, the notable exception being the introduction of a new rule that will limit the deductibility of royalty payments made to recipients benefiting from a non-nexus intellectual property (IP) regime, which will apply from 2018 (see March issue of the International Tax Review magazine). In addition, the German courts issued some decisions that will require the legislator to introduce new rules, such as the replacement of the restructuring relief previously granted under an administrative practice based on a circular (see April issue of the International Tax Review magazine) and new change-in-ownership rules (discussed below). Most other changes to the tax code addressed procedural issues, such as increased notification requirements for certain business relationships with third countries and certain reliefs, by increasing the thresholds that allow simplified approaches to depreciation/amortisation, documentation, etc.
The outlook for 2018 is impacted by the failed coalition negotiations between the Conservatives, the Greens and the Liberals in November. There still is no federal government in place and no clear perspective on the priorities of the new government for the upcoming year. Nonetheless, some items on the (tax) legislative agenda will have to be addressed that will affect international business.
For example, the change-in-ownership rules must be amended as a result of a decision of the German Constitutional Court, which found certain aspects of the rules to be unconstitutional (see July/August issue of the International Tax Review magazine). The court asked the legislature to draft and implement an amended rule that is in line with constitutional principles by December 31 2018, and that would apply retroactively for the period of January 1 2008 through to December 31 2015.
Germany's main task will be to implement the EU Anti-Tax-Avoidance Directive (ATAD) in 2018. No draft of the implementing legislation has been published to date. Some rules in the ATAD (notably, the interest deduction limitation rules) were adapted from the German Tax Code, so it would appear that Germany may not need to amend the existing rules. Some German rules broadly follow CJEU jurisprudence, so will require only very minor amendments (e.g. the exit taxation rules). However, other measures in the ATAD will require substantive legislative action. Although Germany has had controlled foreign company (CFC) rules since 1972, certain aspects of these rules differ from those in the ATAD. Even if the differences may not be substantial, amending the CFC rules so they are in line with the ATAD will be a complex task as the rules have to be embedded in the overall tax system. Introducing anti-hybrid legislation also will be a major project for 2018 (intra-EU) and for 2019 (when the ATAD2 requires implementation of more comprehensive anti-hybrid legislation covering third-country situations). While the ATAD allows a phased approach, it is expected that Germany will try to implement anti-hybrid legislation as one package in 2018. As the internal alignments within the tax administration and the Ministry of Finance are ongoing, it is not expected that the delay in finding a new federal government will delay the drafting of the rules implementing the ATAD.
Alexander Linn (allinn@deloitte.de)
Deloitte
Tel: +49 89 29036 8558
Website: www.deloitte.de
