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Tax Planning: Cross-Border Taxation in Europe (From a German Perspective). Prof. Dr. Ulrich Prinz, WP/StB August 11, 2008. AGENDA. Business Taxation in Germany: Overview Cross-Border Business Tax Consolidation ( Organschaft ) New German Interest Cap Rule ( Zinsschranke )
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Prof. Dr. Ulrich Prinz, WP/StB
August 11, 2008
Dual structured taxation of business activities
withholding tax(25%, 01.01.2009)
no withholding tax
+ solidarity surcharge 5.5 per cent = 15.8 per cent
(1) Computation of taxable income at the level of each group member according to a harmonised, common set of rules.
(2)Consolidation of individual income of group members to group income.
(4) Taxation of the allocated income in the Member States (MS) at each MS’s own tax rate
Example:A Inc., a corporation resident in the US, plans to start up business in Germany. The corporation renders computer management services to German customers. The Chief Executive Officer has to decide whether to:
What do you think the differences are from a tax point of view? M&A perspective: difference between share deal and asset deal.
PE = subject to limited taxation in Germany
Which function will be assigned to the German subsidiary/joint venture concerning sales activities?
Example:P AG, resident in Germany, has several subsidiaries (different legal forms and different economic situations). Every company itself, i.e. P AG and its subsidiaries, pays taxes in Germany on its own (corporation tax, trade tax and VAT); Logistics GmbH makes losses and therefore pays no taxes; Thames Ltd pays taxes in England. The Finance Director wants to know whether German tax law allows group treatment. In commercial law, P AG and its subsidiaries are treated as a group (P AG World Net).
What would you suppose?
P AG World Net Group
German tax law allows tax consolidation (group treatment but without consolidated accounts) for the purposes of
if a subordinate corporation (consolidated subsidiary) is integrated into the enterprise of the controlling parent corporation.
The German X partnership (belonging to an international group) shows a profit/loss for the period of 0 euros on its profit and loss account. For the same period the company had interest expenses of 10.0 million euros, interest income of 1.0 million euros and depreciation of 2.0 million euros.
– Losing the losses – New change of ownership rule (Sec. 8c KStG)
* loss carry forwards
Substance over form = new German anti-treaty-shopping rule (Sec. 50d EStG): The German legislature has increased the substance requirements for non-German companies to benefit from withholding tax relief, in particular with respect to dividends, interest or royalties provided for by DTT or EU directive. A foreign company is in general entitled to neither full nor partial tax relief if
Prof. Dr. Ulrich Prinz
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