By Timo Turek, partner at Ypsilon International GmbH, Cologne
With a delay of more than two years, Germany implemented the Directive on Combating Tax Avoidance (ATAD) into German law on June 30th. The original implementation date was January 1, 2019. The current draft law has now been coordinated with the Federal Council and will come into force on January 1, 2022.
The EU-Base Erosion and Profit Shifting (BEPS) guideline derived from the BEPS project of the OECD is intended to support the member states in the uniform implementation of the BEPS project.
The new law has essentially implemented regulations on exit taxation, the tax reform for controlled foreign corporations (CFC) and the EU-internal anti-hybrid regulation into German law.
Exit taxation (Article 5 ATAD)
Exit taxation is implemented in Germany through various laws.
Article 5 of the Directive obliges the Member States to tax hidden reserves in the event of cross-border transfers of assets, relocations or the withdrawal of corporations. The tax can be paid in installments upon request.
The member states are also obliged to accept the values as “acquisition costs” assessed abroad for taxation purposes in the case of asset transfers and relocation of corporations domestically, if they correspond to the “market value”. “In view of the different views on the market price in the context of international tax law, it remains to be seen whether the regulations will prove to be practicable.
The corresponding implementation takes place in the Income Tax Act and in the Corporate Income Tax Act.
The exit taxation of § 6 AStG will be adapted to the ATAD guideline with regard to the deferral regulations. The previously unlimited deferral option is no longer available and only installment payments over seven years are possible.
CFC tax reform (Articles 7 and 8 ATAD)
The German regulation on the taxation of CFCs was already very far-reaching and covered most of the content of the ATAD regulation. Therefore only minor adjustments were necessary.
The most important adjustment concerns the concept of control. A shareholder-based approach will be pursued in the future. With this approach, it is crucial that a taxpayer “controls” a foreign company alone or together with related parties. In addition, those liable to limited partnerships may also be subject to CFC taxation if the shares in the foreign company are held via a domestic permanent establishment.
In addition, with multi-level corporate structures within the framework of CFC taxation, there is no longer any consolidation of losses at the level of the highest foreign company, which in individual cases can lead to a significant increase in the assessment base.
Intra-EU anti-hybrid rule (Articles 9 and 9b ATAD)
Under the regulation, Member States are to refuse to allow business expenses to be deducted for certain expenses related to hybrid agreements, provided that the income corresponding to the expenses is not taxed by the recipient party.
The core of the implementing ordinances for §§ 9 and 9b ATAD is § 4k EStG, which restricts the deduction of operating expenses for different situations of tax differences due to hybrid elements.
Almost all areas of regulation according to § 4k EStG presuppose a “hybrid element”, ie that, for example, a legal relationship or a legal person is qualified differently by the participating countries.
The regulation restricts a business expense deduction in Germany under various circumstances, in particular if the corresponding income is not taxed due to a qualification conflict or if expenses are deducted both in Germany and abroad. In the case of a double business expense deduction, the rule can also be applied if no hybrid element was the reason for the double deduction. In addition, a restriction on deduction can also apply if a tax treatment difference only occurs abroad but is not corrected there.