Germany: Draft tax law includes BEPS measures including CbCR requirements
International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX
Copyright © Legal Benchmarking Limited and its affiliated companies 2024

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 & bottom lb ros

More from across our site

AI will speed up some of the most laborious TP processes without making human input redundant, argues Hank Moonen, CEO of TaxModel
Firms with a broad geographic reach are more likely to win work, especially from global companies with high turnovers, according to survey data of nearly 29,000 corporate counsel
Australian businessman Gordon Merchant used EY’s advice to offset an A$85 million capital gain, according to the Federal Court
Griggs has been drafted in ahead of schedule as the incumbent Tim Ryan departs for Citigroup; while the Netherlands plans to scrap a 15% share buyback tax
Authorities must ensure that Russian firms do not use transfer pricing schemes to increase profits made from oil sold in different markets, advocacy organisations have argued
Fallet, a partner at law firm Mauger Muniz Advogados in Brazil, tells ITR about his passion for tax law, the leaders who inspired him, and what makes tax cool
The former chief operating officer will assume the role on July 1
Ahead of next week's Indirect Tax Forum in London, ITR spoke with Christian Van Der Valk of Sovos about how different governments and companies are embracing e-invoicing
Konrad Jeczewski has alleged he was threatened with negative reviews before being made redundant by EY Australia
The suggestion was welcomed by Skadden’s European tax head at a special event on space and tax
Gift this article