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Special tax expertise
• Tax planning for international groups
• Taxation of international real estate groups
• Taxation of professional athlethes
• Non-profit organizations
• Preparation of transfer price documentations
BEPS - Domestic sanctions regarding foreign IP-boxes
Restrictions regarding the deductibility of business expenses in Germany
Legislative proposal (draft) of sec. 4j EStG (German Income Tax Act - GITA)
Background information
• Tax incentives for the utilization of intellectual property (IP) in many jurisdictions –so-called preferential regimes
Tax competition between jurisdictions profit shifting within multinational groups
• Goal of OECD/G20: Limitation of tax competition
• UK and Germany: Development of a compromise under which IP-boxes shall be permitted (NEXUS-approach) (“see BEPS 5“)
GermanCo(licensee)
ForeignCo(licensor)
pays license fees
Legal consequences for the GermanCo
1. Split of license payments into a deductible and a non-deductible part.
1. Calculation of non-deductible part:
25% - Tax rate in the IP-box25%
Example: Tax rate in the IP box shall be 10%. 15%/25% 60% of the license payments are not tax deductible.
1. ForeignCo is a related party in the sense of sec. 2 Foreign Tax Act (AStG)
2. Preferential regime in foreign jurisdiction
low taxation of license payments (less than 25%) and divergence
from standard taxation in foreign jurisdiction
3. Preference rule is not linked to any substantial business activity; exemption sec. 4j para. 1 S. 4 GITA
• Substantial business activity
• No precise definition
– IP must predominantly be self-developed / no purchasing of R&D activities; exemption: contract research operated by non-related parties
– What does “predominantly” in fact mean?
– Not in accordance with Nexus-approach
• Low taxation of license payments
• Difference between standard taxation and preferential rule?
– No definition in sec. 4j GITA legal uncertainty
• “Revenue” (gross amount) or “income” (net amount) / What’s the tax base?
– Standard in Germany : objective net earnings principle = income; Sec. 4j GITA: “revenues”
– Tax base in foreign IP-box jurisdiction is relevant for the question whether a taxation is low or not (less than 25%)
• German withholding tax To be considered in the “low” tax rate of 25%?
• Low taxation: 25%
• The tax rate of 25% is way too high. Tax rate for German corporations is already 15%
• Effective double taxation
• New rule of sec. 4j GITA is linked to taxation rules in foreign jurisdictions
• Practical execution? Will cause a lot of discussions with German tax authorities
• Not in line with Nexus-approach
• Single-handled action by Germany
• Constitutionality?
• Undermining of the objective net earnings principle
• EU compliance? / Violation of free movement of services?
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consequences
• Tax residence & International tax treaty compliance
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• Healthcare coverage & International social security compliance
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• Tax regularizations (assets held abroad) •
• Trust returns compliance in France •
• Assistance with setting up financial and property investments
• VAT registration and VAT returns
• Creation and operation of gîtes, B&B… •
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