August 25th, 2009 | Published in German Tax News
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the Federal Government announced its reasons for the move, stating that the double taxation convention (“DTC”) was outdated and unbalanced.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 , but since these negotiations turned out to be ineffective, Germany terminated the DTC in order to strengthen its negotiating position.
This termination is another example of Germany’s international taxation politics: its espousal of enforcement of the OECD Model Convention standards is not just lip service, but rather, Germany intends to set a good example for application of the model convention. Despite the positive effects brought by uniform double taxation conventions, such as simplification of the handling of double taxation matters, we should bear in mind that the exchange of information standards provided by the OECD model convention bring us continually closer to the transparent taxpayer.
The DTC will expire in 2010 and will therefore not apply to taxes arising in fiscal years starting on or after 1 January 2011. This delayed termination is intended to give the countries enough time to negotiate a new convention and allow for a seamless transition in order to avoid disadvantages for German investors in Turkey.