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Newsletter for foreign investors in Germany May 2020 YouTube Twitter Facebook Google Xing Instagram
Dear  Eva,

The coronavirus is these days the dominating topic in all news and discussions and it is challenging to remind people of other changes. Since we have already informed our readers in a special newsletter about a lot of measures, the German government has initiated to help companies suffering from economic problems due to the coronacrisis and since there is almost daily news/updates of short-time working compensations, tax free incentives for employees, government grants for entrepreneurs, loans without credit rating and securities or postponed deadlines for submitting declarations, publishing financial data or asking for already paid tax advances to be paid back, we would to invite those suffering from the crisis to contact us for individual consultation. Moreover, Germany seems to have overcome the first wave of COVID19 quite luckily without a total shutdown and at the moment we already see the re-opening of shops and going back to almost normal in many states and some business sectors.

Therefore we will concentrate on other matters that are of interest to foreign investors in Germany in this newsletter. We wish you inspiring reading and look forward to hearing from you.
Tax News from Germany for foreign Investors
Salary extras for your employees

If you face difficulities in finding qualified staff these salary extras may make you more attractive as employer as your employees will receive a higher net salary than with a normal salary increase.

German fiscal authorities offer numerous preferential salary components, wage taxes and social security contributions. This article shows interesting remuneration components and what should be considered when implementing them. Usually they mean more admin work for the employer, but sometimes it is worth it as the employees get "more net out of gross". With a click on the respective headline you get to the corresponding article.

Please note that in addition to the normal incentives there is a brandnew rule that employees can be paid free of taxation an additional bonus of 1,500 Euros by their employers in 2020 due to the corona crisis (introduced in April 2020). Details can be provided on demand. 

1. What does “tax-privileged“ mean?
2. Token Gifts
3. Support Benefits
4. Company Bicycles
5. Meal Subsidies/Restaurant Cheques
6. Travel Allowances
7. Company Cars
8. Health Services
9. Vouchers
10. Job Tickets
11. Kindergarten Subsidies
12. Meals during an external activity
13. Employee Shareholdings
14. Private use of company telecommunications equipment
15. Reimbursement of travel expenses
16. Provision of parking spaces free of charge
17. Surcharges for Sunday, public holiday or night work
18. Flat-rate income tax for benefits in kind (§ 37b)
Place of Management of German subsidiaries of foreign companies

It seems that some tax offices have discovered new sources of income that they collect from foreign companies: It is the place where the managing director(s) perform their work. Therefore it is advisable to think carefully about where to put your headquarters and where you live as a manager.

The tax office asks where is the place of management? This place of management can be different from the legal seat. Both criteria lead to a liability for unlimited taxation in Germany.  According to Sec. 10 of the General German Tax Code the place of management is where there is the centre of the management, i.e. where is the decision making done, where the strategic and operational decisions are made. Should there be several places, it is decisive which is the most important one, which is used permanently. This is usually where the managing director has an office which he uses to make decisions on behalf of the company. So, if the German tax office asks you where the place of management is, please be aware that depending on your answer this may be the possible consequences:
  • Somewhere abroad
    Possible Consequences: In this case the tax office will take that place down and will assume a permanent establishment of your company in that country. You will then be asked to allocate the total profits or losses to the parent and to the permanent establishment. Please note that in case of losses the German tax authorities usually do not accept them to be in Germany but will attribute 100% of them to the permanent establishment in the other country. In case of profits you need to document well, using a risk and function and assets analysis of all entities in order to determine where profits shall be attributed to.
  • In Germany
    Possible Consequences: The tax office may ask you to prove that the managing director has got a residence in German or stays in Germany frequently in order to make day-to-day decisions. This can be done by providing hotel invoices, airline tickets, boarding cards, etc. If the managing director of your company in Germany is a wealthy person who is living abroad, is taking a residence in Germany, this has some tax consequences. If you want to know what may happen I recommend to watch this short Benefitax video.

    Another way to avoid that would be to appoint a German citizen as managing director and give orders to that person, which he needs to respect internally (between shareholders and him, but not necessarily against third parties). Since he already has a residence in Germany this would not create an additional tax status, but of course a labour contract for the managing director needs to be closed and he needs to receive a monthly remuneration.
Should you have more questions we are happy to support. Just contact us.
Transfer pricing - Results of an empirical study

A recent study by FGS indicates that these are the hot topics in German tax field audits in international groups in the context of determining and documenting transfer prices between group companies.

1. remuneration of services (48%)
Difficulties in determining the chargeable services and their differentiation from non-chargeable shareholder expenses. In addition, problems proving that the service has generated a benefit for the recipient.

2. compensation for supply relationships with distribution companies (41%)
It is often claimed that foreign companies earn too much or that domestic distribution companies are not allowed to make losses.

3. remuneration for the use of intangible assets (41%)

4. remuneration for financing (35%)
Here the level of interest rates plays a role, cash pooling, the remuneration of guarantees and sureties play a role.

5. changes in functional and risk profiles, especially in the case of function relocations (32%)

6. remuneration of supply relationships for upstream production stages (24%).

Choice of method:
Dominance of the easy-to-use cost-plus method in all types of transactions, especially in intermediate products (74%), services (71%) and the development of IP (80%). This is probably due to the fact that the resale price method is often too complicated and corresponding arm's length values and margins are rarely ascertainable. However, case law, tax authorities and the OECD do not consider the cost-plus method to be ideal and only admissible if the company is neither a strategy carrier nor a medium-sized enterprise (i.e. rather a routine enterprise or LDR).

The resale price method is the second most frequently used, but only for finished products (21%) and merchandise (24%).

TNMM is mainly used for finished products (15%), merchandise (19%) and the use of IP (11%).

The price comparison method plays a subordinate role and is mainly used here: Use of IP (34%), finished products (15%), services (13%) and merchandise (11%).

Determination of the endowment capital for domestic and foreign permanent establishments

Definition: Endowment capital is the equity capital of the parent company attributable to the permanent establishment (PE).

The endowment capital is to be determined at the beginning of a financial year and is then decisive for the entire year. Exceptions: Significant changes (>30% or at least € 2 million) in the allocation of personnel functions, assets, opportunities or risks.

Watch out for a differentiation between:

a. Domestic PE of foreign enterprises: Capital allocation method
b. Foreign PE of German companies: Minimum capitalisation method

a. Domestic PE of foreign companies: Capital allocation method
Section 12 (1) - (3) BSGaV: The endowment capital of a German PE is the proportion of the foreign company's equity (determined in accordance with German tax law) that corresponds to the proportion of the assets and the opportunities and risks in relation to the rest of the company. Special features apply to enterprise groups and certain industries such as banks.The lower limit, however, always represents the equity actually reported in accordance with § 12 (5) BSGaV.

b. Foreign PE of German companies: Minimum capital adequacy method
In contrast to the above, the foreign PE of a German undertaking may only be allocated endowment capital if the undertaking can credibly demonstrate that it is economically necessary. This is to ensure that the foreign permanent establishment is not allocated too much endowment capital or too little liability and that the interest expense is deducted when determining the income of the foreign permanent establishment and not in the domestic parent company. No endowment capital is allocated to the foreign PE without proof.

Implementation of the DAC 6 EU directive in Germany as an early warning system to identify tax avoidance

Following the EU directive DAC 6, rules to report cross-border arrangements have been implemented in German law in Section 138d ff. of the German general tax code that will come into effect as of 1 July 2020. Since non-compliance can be sanctioned with multiple fines of up to 25,000 Euros, it is advisable to know about the basic rules and, if applicable to you, to ask an expert for details.

Under that directive any person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement is an intermediary. An intermediary can be either an individual or a company (i.e. accountants, advisers, lawyers, banks, etc.). However, in some situations, the obligation to report the arrangement shifts to the Relevant Taxpayer, e.g. when an intermediary is a non-EU intermediary, when no intermediary is involved or when the taxpayer is notified that an intermediary has the right to a waiver due to legal professional privilege. The latter applies to Benefitax as German public audit company.

Taxpayer in this meaning can be any private individual, corporation or partnership for
a) whom an arrangement has been prepared,
b) who is ready to implement the arrangement or
c) who has made the first step to implement the arrangement.
The deadline to report is 30 days after one of these three conditions has happened. Moreover, the arrangement has to be reported in the annual tax declaration of the year they have a tax effect.

An arrangement will be reportable if it meets at least one of the Hallmarks. For Hallmark categories a, b and certain elements of category c, an arrangement will only be reportable if it is also captured by the so-called ‘Main Benefit’ test. This test means that one of the main objectives of the arrangement is to obtain a tax advantage. It is possible to prove that other reasons have been the main objective.

The new rules will be applied from 1 July 2020 to all reportable arrangements occuring after 30 June 2020. However, this will be applied retroactively to all reportable arrangements for which the first step has been made after 24th. June 2018, but implementation was before 1st. July 2020. Therefore it is advisable to start checking and documenting now in order to prepare yourself.

OECD comments on tax consequences in international tax law

The OECD addressed the Covid-19-related effects on questions of international tax law at an early stage and published a guideline at the request of affected countries on 3rd. April 2020 with regard to relevant rules of international DTAs.

1. Establishment of permanent establishments

The OECD is of the opinion that temporary, Covid-19-related work in another country - e.g. through home office - should not trigger a (new) permanent establishment of a company. This should also apply if during this time contracts are concluded from the home office with effect for the employer. The current situation is not permanent, but temporary. There is also a lack of power of disposal of the enterprise over the Homeoffice. Furthermore, the Covid-19-related activity outside the usual workplace is generally not a voluntary decision by the employer, but is based on regulations and recommendations of the respective governments.

2. Place of management

It is questionable to what extent the place of management of a company can be relocated abroad if the Covid 19 pandemic means that the managing directors or other senior executives are no longer able to visit the actual place of management and important business decisions are therefore made from the home office. The OECD considers it unlikely that a relocation of the place of management would result from the temporary exercise of management activities in another country due to exceptional circumstances. Furthermore, any possible double residency is generally already avoided by the so-called "tie-breaker rule", which is contained in most DTAs.

3 Taxation of the income of individuals and tax residence

Increased working from the home office also raises questions at the employee level. For example, many cross-border commuters currently work - if at all - only from their home office in their country of residence. The right of taxation on wages and salaries, which normally resides in the employer's state of residence, as well as possible government support payments could therefore shift to the employee's state of residence or double taxation could occur.

In the opinion of the OECD, this issue could not be solved exclusively on the basis of the principles in force. Rather, the OECD sees the need to find appropriate coordination between countries in order to keep financial disadvantages or the administrative burden on those concerned to a minimum. An appropriate solution is already being worked on with the individual countries. The German Federal Ministry of Finance published a brief statement on this subject on 3rd. April 2020, according to which work is already underway to agree special bilateral arrangements with neighbouring countries in order to avoid adverse effects.

- The aim is to introduce a temporary special regulation according to which working days in the home office are treated as if they had been spent in the other state (state of residence of the employer).

- This possibility is not to apply to working days which would have been spent in the home office or in a third country independently of these measures, in particular if the employees would in principle have worked in the home office anyway according to the provisions of the employment contract.
GGI Publications
As you probably know Benefitax has been a member of Geneva Group International for many years and I am the global chair of their International Taxation Practice Group (ITPG) since 2008. GGI practice groups regulary publish newsletters in which experts of their respective field write a short article about a topic of interest, actual development or new rule. The following newsletters may contain interesting information for you. If you need further information concerning one of the topics you are welcome to contact us or the respective author directly.
FYI - International Taxation Special Edition: "Working Together to Optimise International Tax Compliance"

The GGI Practice Group International Taxation has published a new special issue of FYI International Taxation News. On 51 pages, authors from 19 countries describe how tax compliance works in their country - from A for Australia to U for USA.

I have taken it upon myself to write the chapter for Germany. An interesting read for all those who want to do or expand business in other countries, especially with an own company or permanent establishment. For example, it describes the different types of taxes and legal forms, deals with trusts and foundations or money laundering regulations or describes how to work with experts from other countries.

You will find the article at the top of the page "Specialist articles on tax consultancy and auditing" on our homepage. To enter the entire Newsletter please click here or on the picture.
FYI - International Taxation News
The regular newsletter on International Taxation contains numerous articles that provide valuable information for anyone working internationally. As head of the practice group "International Taxation", I have written the editorial for this issue of the newsletter.

You can access the entire publication via the photo on the left or via this link, my editorial can be found on page 2.

FYI - Indirect Taxes News

A full house of articles to keep you updated on the latest indirect tax (e.g. VAT, sales tax or GST) developments around the globe. All articles are different and are well worth reading.

You can reach the entire publication via the photo on the right or via this link .

FYI - Trust & Estate Planning News

The subject of inheritance and inheritance planning and the related questions of taxation affect many of us, are not popular and should nevertheless be tackled in good time so as not to have to pay too much tax at some point or to leave one's descendants behind with a heavy tax burden.

I have pulished an article in this issue on Tax Implications of Beneficiaries of Foreign Trusts Moving to Germany. that you can read via the link.

You can get to the entire publication via the photo on the left and via this link .
FYI - Auditing, Reporting & Compliance News

This edition includes highly relevant articles on the latest trends and experiences in digitisation and developments in professional standards (e.g. IAASB, AICPA), as well as many interesting technical topics from different accounting and auditing jurisdictions.

Find all articles via this link or via the photo.
FYI - Debt Collection, Restructuring & Insolvency News

The articles of the present newsletter deal with many interesting topics from court decisions about the right of indemnity of a bankruptcy trustee and the vesting orders in Ontario state to the necessity of notarisation of certain documents in Germany.

Besides this, it analyses the questions of cooperation in an insolvency procedure, and how to close an entity in Croatia, as well as how to enforce an arbitral award in Austria, and many other topic.

Read the issue via this link or click on the photo
FYI - Labour and Employment Law News

You will find various contributions from employment law experts on current topics, such as what to watch out for if you pay your employees in Bitcoin, a new tax-friendly bonus reward system in Belgium, and the growing issue of wage theft in Australia.

Two of our member firms also pay attention to the US National Labor Relations Board that continues to reverse course on previous Obama-Era Reforms.

Click on the photo or take this link to get to the issue.
FYI - Litigation and Dispute Resolution News

This issue contains fourteen articles and we recommend all of them to you. They give you a truly global picture of various issues in the field of litigation and dispute resolution. The lead article is about the implementation of the European Directive on the protection of undisclosed know-how and business information (trade secrets) in Italy, a topic of growing interest for more and more businesses. In addition, it contains a mix of country reports both on material and procedural topics from various jurisdictions (Spain, US, Canada, UK, Russian Federation, Albania, The Netherlands, Ireland, Poland, and Australia).

Find the articles via clicking on the photo or on this link.
FYI - Real Estate News

Real estate remains a very important part of many peoples' personal and business interests. We are very grateful to the many contributors from around the world for articles providing information on buying real estate in their country and key changes to legislation affecting ownership.

Enjoy this newsletter via the link or photo.
Benefitax News

Meeting of International Tax Experts in Frankfurt

This year's ITPG Summit took place in Frankfurt am Main from 27 February to 29 February and we were happy to be the host of this annual GGI event.

Due to the beginning of less travelling due to corona virus some delegates stayed away, but in the end there were 47 international tax experts present.

The following presentations were given by the delegates:

• Taxation of Cross-border M&A in Italy (Prof. Roberto Cagnazzo, Italy)
• Application of the Spanish Participation Exemption Regime in Corporate Tax (Carlos Frühbeck Olmedo, Spain)
• Cross-border Estate Tax Planning - a UK Perspective (Nick Brennan, United Kingdom)
• Exchange of Information: Does it Work? A South African Perspective (Graeme Saggers, South Africa)
• CFC and Substance (Prof. Robert Anthony, France)
• Residency Traps (Ashishkumar Bairagra, India)
• DAC 6 - Mandatory Disclosure Regime (" MDR ") A New European Tax Transparency Regime (Jean-Pierre Verlaine, Luxembourg)
• The Swiss Tax Reform for Enterprises 2020 (Marc Niederöst, Switzerland)
• Country by Country Reporting: First Experience (Bärbel Wierzoch, Germany as moderator and as panellists Fernando Lopez, USA; Claudine Heinrich, France and Ashishkumar Bairagra, India)
Next to the technical exchange of knowledge and expertise we enjoyed leisure activities in the evenings and took the chance for networking on an informal level. So for example did we meet for the final dinner on Saturday night at the Genussakademie in Franfurt. Here we cooked a 9 course menue ourselves (of course under the guidance of the professional chefs) and used the time cooking fo vivid exchange.

All in all the ITPG Global Tax Summit was again a great success. Newcomers became friends. Friends intensified their friendship and all learned new tax topics from the wonderful presentations and lively discussions.

Thanks to this international allicance we can offer you the knowledge of experienced tax experts in more than 90 countries. If you want to learn more about one of the above mentioned topics or need support in another country, just contact us and we are happy to to establish contact with our colleagues.sed.
Two more Awards for Benefitax

We are very pleased that we have received two awards in the past weeks:

During the annual GGI ITPG Summit, the practice group "International Taxation", which I head, awards prizes for the best professional and interdisciplinary presentations of the previous year.

The participants of all practice group meetings evaluate online each presentation after the meeting with a point system.

This year, I received the award for the best professional presentation with my role play "Can a wrong transfer price put you in prison?", which was played out at two meetings (in Tel Aviv and in Prague) last year. I am very happy about this and I would like to thank all those who voted for this performance and all those who supported me in the planning and realisation wearing funny costumes.

In April we received another good news: The German business newspaper “Handelsblatt” has again published an exclusive ranking of the best tax advisors in Germany in its issue of 01.04.2020. Among approximately 4,200 participants, a total of 609 firms were honored as top tax advisors. We are very pleased that we are among the winners and thus continue to be among the top tax advisors in Germany.

Benefitax achieved the highest score in the field of “payroll accounting” and for the industry rating “trade”. The following criteria were included in the evaluation: Basic knowledge, specific professional competence and employment of specialist consultants. Among the best firms in the overall evaluation are those that achieved at least 70 percent of the maximum possible score. You can find the exact ranking here (in German).
Benefitax Tax News Videos launched on YouTube

Tax Consequences of managing directors of foreign corporations living in  Germany

You are the managing director of a foreign company and live in Germany? In this video you will get information about the possible tax consequences. Click directly on the photo on the left or here to go to the video on our Youtube channel.
Investing in Germany via a letterbox company in a tax haven

This tax video is aimed at anyone considering investing in a so-called "tax haven" in Germany via a mailbox company. The  legislator has tightened the rules in recent years and those who want to be on the safe side should inform themselves thoroughly in advance. You can watch the video on our Youtube channel by clicking on the photo above or here.

How to save taxes when investing in real estate property in Germany

Do you want to know how you can save taxes when investing in real estate property in Germany? In this video you will earn useful information! You can watch the video on our Youtube channel, by clicking on the photo on the left or here
We are expanding our contact network: I became Vice President of TiE Deutschland e.V.

After attending some events since 2018 I became a Charter Member of TiE Deutschland e.V. in April 2019 and first took over responsibility as treasurer. In September 2019 I was elected Vice-President.

On 14./15. November I had the pleasure to attend the TiE Global Summit 4 in New Delhi/India and met some of our Indian cooperation partners. I was accompanied by the president of TiE Deutschland e.V., Mr. David Gower and by TiE CM Mr. Jayant Kirloskar. We also visited the TiE Dubai chapter in the UAE on the way back to Germany and later had an exchange with the TiE chapter in Tel Aviv.

TiE is an international non-profit organization for the promotion of intercultural exchange and entrepreneurship. TiE was founded in 1992 in Silicon Valley and today has 15,000 members in 14 countries worldwide.

We are looking forward to your feedback, suggestions and inquiries and wish you a succesfull and healthy time. Stay safe!

Best regards from Frankfurt

Oliver Biernat,
Managing Director
  • German Chartered Accountant
  • German Certified Tax Advisor
  • Specialist Advisor in International Taxation
You can count on us – from A as in application to Z as in free tax zone.
Call us at: +49 (0) 69-25622760
Mail us at: info@benefitax.de
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