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Germany: Tax amendments 2015 finalised

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Dieter Endres

After a series of political disputes, the Bundesrat gave its approval to a watered down Bill to change various tax rules on the lines of a traditional tax amendment act. While the amendments are not drastic, the Bill covers the following.

Income Tax Act

An attempt to transpose the ECJ Beker and Beker judgment of December 18, 2013 (case C-168/11) into national law. The ECJ held the present method of calculating the maximum foreign tax credit to be unacceptable because it effectively reduces personal allowances in proportion to the tax-free foreign source income. The amendment does not completely achieve its object because of a drafting error. Further legislative action is to be expected.

The employee outing tax-free allowance of €110 per head has been retained, but now includes the venue costs as well as the costs of consumption. The main effect is to complicate the administrative burden on employers.

Foreign Tax Act

The profit correction provision has been amended to remove all foreign/domestic considerations from third-party comparisons. This follows from attempts to deny the validity of an unfavourable third-party comparison because one of the parties to it was a local resident.

VAT

Managing portfolio investments on behalf of customers is henceforth a taxable transaction in Germany when performed for a customer in a non-member state of the EU. This responds to an unsuccessful attempt to claim the contrary before the ECJ.

Other changes

In the same session the Bundesrat gave its approval to provisions for less generous treatment of tax evaders coming forward. The restriction follows from improved methods of detection.

Open issues

Proposals that have not been passed, but which remain on the agenda – for 2015 or later – include:

  • a prohibition of a business expense deduction for an outlay that has been or will be deducted abroad. This is primarily intended to counter hybrid financing schemes;

  • taxation of the capital gains of companies from the sale of portfolio shareholdings. This demand of the Bundesrat reflects that body's view of a capital gain as a direct substitute for a dividend;

  • an extension of the intra-group exemption from the loss forfeiture rules for share transfers between related parties; and

  • the abolition of tax-free share exchanges to the extent of a cash balancing payment.

Dieter Endres (dieter.endres@de.pwc.com)

PwC Frankfurt

Tel +49 69 9585 6232

Website: www.pwc.com

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