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Germany Corporate - Significant developments

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In November 2018, both German parliaments gave their consent on a bill on various changes in tax law.

The most important changes with respect to the direct taxation of companies are mostly reactions on recent adjudication, inter alia:

  • Abolition of the rule for a partial tax loss-forfeiture on acquisitions of a qualified interest of more than 25% and up to 50% in a corporation with retroactive effect from 1 January 2008 following a decision of the German Federal Constitutional Court on 29 March 2017. The rule for a tax loss-forfeiture on acquisitions of an interest of more than 50% in a corporation remains applicable.
  • Reapplication of the exemption from the tax loss-forfeiture rules for share transfers for the purpose of restructuring the respective corporate entity after the European Court of Justice (ECJ) annulled the decision of the Commission of 26 January 2011, according to which the so-called 'restructuring clause' was considered unlawful state aid.
  • Reintroducing into force retroactively a rule according to which, under certain conditions, the income from a debt waiver for the purpose of a restructuring will be tax-free after the European Commission (EC) issued a letter of comfort according to which the rule does not constitute unlawful state aid.
  • Amendment of the rules on the German group taxation (so-called Organschaft) with respect to compensation payments to outside minority shareholders exceeding the required minimum amount according to company law.

Furthermore, a new taxation rule for non-residents has been introduced according to which gains from the alienation of shares in a corporation will be taxable in Germany if conditions comparable to Art. 13 para. 4 of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention 2017 (more than 50% of the value of the shares is directly or indirectly derived from immovable property situated in Germany at any time during the 365 days preceding the alienation) are fulfilled even if the corporation is not resident in Germany.

However, some necessary changes in tax law are still outstanding. The European Union Anti-Tax Avoidance Directive (EU-ATAD) must be implemented into local law in the main by no later than 31 December 2018 and is to be generally applied from 1 January 2019 onwards. In May 2017, the Council of the European Union further adopted a directive amending the EU-ATAD (ATAD II). The member states must transpose ATAD II into local law by 31 December 2019 and apply it generally from 1 January 2020 onwards. To date, the legislative procedure for the implementation of these rules into local law has not started in Germany.

On 14 June 2018, the ECJ decided that the currently applicable German anti-treaty shopping rules denying full or partial relief from withholding tax (WHT) as otherwise prescribed under a double tax treaty (DTT) or applicable EU directive were neither compatible with the Parent-Subsidiary Directive nor with the freedom of establishment. The ECJ had already come to the same conclusion on 20 December 2017 with respect to the rules, which were applicable until 2011. In response to the ECJ decision of 20 December 2017, the tax authorities no longer apply the rules as in force until 2011 to claims for relief from German WHT on dividends under the Parent-Subsidiary Directive (Ministry of Finance circular dated 4 April 2018). With regard to the current version of the rules, the Ministry of Finance circular provides for a modified application of the rules for claims for relief from German WHT on dividends under the Parent-Subsidiary Directive. Following the decision of the ECJ, an amendment of the anti-treaty shopping rules in their current form may be expected.

Further, a tightening of the rules for levying real estate transfer tax (RETT) in connection with a share transfer is currently envisaged and intensely discussed.


Last Reviewed - 16 December 2018

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