With its decision from the 8th of September 2010, published on September 23rd, the German Federal Constitutional Court (Bundesverfassungsgericht, BVerfG) decided that the petition for judiciary review of the Solidarity Surcharge (Solidaritätszuschlag) charged in 2007 which was filed by the Financial Court (FG) of Lower Saxony is inadmissible. The Financial Court’s claim that the solidarity surcharge is unconstitutional due to it having the singular purpose of providing temporary coverage of financial requirements was ruled invalid - the reason being that the Financial Court did not adequately analyze the previous case law on the nature of supplementary taxation.
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The preclusion period for electronic input tax refund will elapse at the end of this month.

Since the beginning of the year, VAT amounts due in EU member countries other than the one in which the entrepreneur is located can only be refunded via an electronic application system. In spite of massive EU wide technical difficulties with this system, the deadline will remain on 30th of September 2010. Even though the European Commission did propose an elongation of the deadline (see this article on our blog), the proposition was not processed at the recent ECOFIN session on September 7th. ECOFIN’s informal session at the end of this month is also not expected to bear results in this regard. It is highly unlikely that there will be a retroactive extension of the deadline in any future meetings of the committee.

Eligible businesses should therefore, in their own best interest, file the necessary applications within this month.

Germany’s “Hot Topic”

48% of all Germans do not want to increase the life-span of Nuclear Power plants at all, 29% are okay with an extension for a maximum of ten years, the likes of which was proposed by Environmental Minister Norbert Röttgen (CDU) in opposition to most of his colleagues. At least 77% of the German population are opposed to a longer life span that includes 15 or more years of future service, calculated Continue →

Germany’s industry is recovering unexpectedly fast. A hailstorm of orders is raining down on the train and airplane industries, and manufacturing is once again the economy’s MVP.

The most important aspect of demand is coming from abroad – foreign orders have increased by 5.7%, most of which being large scale orders in air- and space technologies as well as train cars. Domestic business has only grown by 0.3%. The department of commerce has announced expectations that industry Continue →

On 14.07.2010 the EU-Commission has proposed a change of the so called VAT-refund policy (2008/9/EG) to give tax payers more time for the submission of electronic input-tax refund applications.

According to the refund policy, non-EU-resident tax payers can apply for a refund of the VAT on business expenses in a member state via an electronic website, set up by said individual member state. This method was chosen to succeed the previous, more convoluted method. This method required the filing of the application in the precise state the input tax originated – which usually meant having to deal with forms in different European languages and keeping different deadlines and procedural rules in mind.

Germany has already converted to the electronic input-tax refund system on January 1st 2010. Due to this, as of 2009 input tax refunds can be applied for electronically. The original preclusion period of the input-tax refund system was thus prolonged by three months, leaving it at the 30th of September of the following year.

Every member state had to have its web portal online by the 1st. of January 2010, but some have experienced technical difficulties in the inception. To protect the right of taxpayers for VAT refunds, the EU commission is now proposing an additional extension of the deadlines for applications from 30.09.2010 to 31.03.2011.

The German value-added tax system knows two rates of taxation:

• The regular tax rate of 19% and
• The reduced tax rate of 7%.

Amongst others this reduced tax rate includes the delivery of forest and agricultural products, comestible goods and print media, and thus mainly serves a social function. Constant changes of these categories have lead to an increasing complexity of the system.

Due to these increasing difficulties and redundancies, the Bundesrechnungshof (German Federal Court of Auditors) has proposed a complete overhaul of the VAT system. The Bundesrechnungshof propositions include a list of future organisational models for tax rebate in the form of a briefing. Any of the reduced tax rate cases should be investigated individually and receive critical review.

There have been numerous Bundesrechnungshof reviews on the range of application of reduced tax rates, which lead to the only possible conclusion that a number of these largely venerated privileges are no longer objectively justifiable.

The third topic Mr. Peter Dehnen dealt with during his participation in the ABA´s 10th Annual Tax Planning Strategies Conference in Copenhagen are the forms of cooperation for tax purposes in Germany.

Details can be found in the attached written paper.

Read the complete article.

Regarding the limits of information gathering within taxation proceedings, German Fiscal Courts regularly held that information, which the tax payer is not obliged to document, cannot be asked for by the tax authorities.

As a result German legislation became increasingly complex and extensively requires tax payers to document and provide proof, e.g. payment of interest, fees and commissions across borders. Regulations on data support in terms of transfer pricing can be regarded as climax of that tendency.

For more see the written paper on Mr. Peter Dehnen´s speech on Transfer Pricing at ABA´s 10th Annual Tax Planning Strategies Conference.

Read the complete article.

Mr. Peter H. Dehnen served on the “Governments and Information Gathering: Impact on MNE Planning” panel at the ABA sponsored 10th. Annual Tax Planning Strategies Conference in Copenhagen. His first issue to speak on was “Reporting by Corporations as part of German Compliance Requirements”.

Outlining the system of German reporting obligations for corporations, Mr. Dehnen emphasized aspects such as the Financial Reporting Enforcement Panel, which is also known as “Balance Sheet Police” as well as German governmental information gathering in terms of the tax assessment proceedings vs. “corporate privacy”.

For further details find attached the written paper on the matter.

Read the complete article.

The CEO and founder of Dehnen.Lawyers, Peter Dehnen, will be serving on the “Governments and Information Gathering: Impact on MNE Planning” panel at the ABA sponsored 10th. Annual Tax Planning Strategies Conference in Copenhagen. The issues, which we will cover on this newsletter in the future, include

• Reporting by Corporations as part of German Compliance Requirements
• Data in Support of Transfer Pricing - Quantification Requirements to Support Deductions in Germany
• Forms of Cooperation for Tax Purposes in Germany

Peter H. Dehnen is a corporate and international tax lawyer and partner of the law firm DEHNEN.Lawyers which provides legal and tax consulting to German and international businesses. Mr. Dehnen has developed extensive competence in areas such as corporate and individual tax and estate planning, international business transactions, Corporate Governance and Corporate Compliance. He is a qualified German tax attorney and also admitted to the Washington, D.C. Bar as a Special Legal Consultant. Mr. Dehnen advices German and international executives on legal, tax, legislative and policy issues impacting Germany.

You can look forward to these three very extensively covered topics in the new editions of our GermanTaxNews.