On 9 November 2009, the German government announced a draft Act for the Acceleration of Economic Growth (Gesetz zur Beschleunigung des Wirtschaftswachstums or Wachstumsbeschleunigungsgesetz, hereinafter the “Economic Growth Act”.
This act is intended to implement some of the election pledges of the newly elected coalition government. The Economic Growth Act therefore contains several amendments to recent legislation intended to limit the negative consequences to the German economy resulting from the current economic crisis. Continue →

On 4 November 2009, the German Federal Finance Court published a decision from 25 August 2009 in which it held that the so-called “exit tax” imposed by Sec. 6 of the Foreign Tax Act (Außensteuergesetz or AStG), is compatible with the German Constitution and European law.

In the case under consideration, two spouses each held more than 25% of the shares of two German public limited companies Continue →

The coalition agreement concluded by the CDU (Christian Democratic Union), the CSU (Christian Social Union) and the FDP (Free Democratic Party) following the recent federal elections contains several taxation measures which are planned for the near future.
One such measure is the German Inheritance and Gift Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz, ErbStG), which was subject to major amendments effective as of 01.01.2009 and is to be amended again in regard to Continue →

In early October, the Finance Court of Cologne published its decision of 7 July 2009 regarding the lawfulness of short-term tax audits.
In the case under consideration, the taxpayer was classified as a “large” firm based on its profit and turnover. The local tax authority chose the plaintiff for a tax audit that would cover only the year 2007. The plaintiff appealed against the order asking for a preliminary injunction (vorläufiger Rechtsschutz) against the conduct of the tax audit. Continue →

On 23 September 2009, the German Federal Fiscal Court published a decision from 24 June 2009 in which it held that the German tax authorities’ right to request data within the scope of a tax audit does not exceed the taxpayer’s obligation to keep records and that the tax authorities have no right to demand additional data which a taxpayer creates voluntarily if such data is not required by law.
In the case under consideration, the taxpayer kept records to the extent legally required and also used an electronic accounting system. Within the scope of a tax audit, the tax authority requested data in the form of the electronic accounts kept for 2002 and 2003. Continue →

The German Foreign Relations Tax Act (Außensteuergesetz or AStG) contains the general rules for applying Germany’s transfer pricing regime and for determining income from cross-border transactions between related parties. In 2008, the AStG was amended by adding new Sec. 1(3), which contains rules on the transfer of business functions abroad, which are subject to transfer pricing principles under German tax law. For clarification purposes, the amended act was accompanied by Function Transfer Regulations (Funktionsverlagerungsverordnung or FVerlV) issued by the German Federal Ministry of Finance (Bundesministerium der Finanzen or BMF). Continue →

On 21 July 2009 Germany terminated the Agreement between the Federal Republic of Germany and the Republic of Turkey for the Avoidance of Double Taxation with respect to Taxes on Income and Capital which was concluded on 16 April 1985.
On 24 August 2009, the Federal Government announced its reasons for the move, stating that the double taxation convention (“DTC”) was outdated and unbalanced. Germany had entered into negotiations with Turkey to amend the DTC to bring it more in line with the OECD Model Convention Continue →

In the case of Lidl Belgium, decided on 15 May 2008, the European Court of Justice (“ECJ”) held that the freedom of establishment ensured by the Treaty of Rome does not preclude a Member State from disallowing the deduction by a taxpayer in that state of losses incurred by a permanent establishment of that taxpayer in another Member State. This decision applies to cases in which, by virtue of a double taxation convention, the income of the permanent establishment is taxed in the latter Member State and its losses cannot be used to reduce the taxation of the permanent establishment’s income in later fiscal years.

The ECJ noted that while such a tax treatment is a restriction on the freedom of establishment, since the company would be allowed to deduct the losses of a permanent establishment located in the same Member State as the company itself, it can, however, be justified in light of Continue →

The Act on the Combat of Tax Fraud, which recently passed the German Bundesrat, empowers the German federal government to specify the information duties which taxpayers must fulfil in order to be granted tax relief or deductibility of expenses when dealing with tax haven states.

The federal government has now published the draft of a regulation which sets forth these duties. The regulation does not Continue →

On 10 July 2009, the German Bundesrat held its last meeting before the summer break. Since Germany is facing federal elections in late September, this session potentially represented the current government’s last chance to pass the draft laws which it has submitted in the past few months. Therefore, the meeting held on 10 July 2009 was a marathon session involving voting on 62 different laws.

Among these draft laws were the German Act on the Combat of Tax Fraud, which increases a taxpayer’s duty to provide information in regard to transactions involving tax havens or the placing of funds in such countries. If certain requirements are not met, the taxpayer may face Continue →