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what’s new with German taxes

Wednesday 10 March, 2010

I attended this seminar organized by the German American Chamber of Commerce in the Midwest & Ernst & Young WHAT IS NEW IN GERMAN/U.S. TAX LEGISLATION AND CROSS BORDER TAX PLANNING? featuring Patrik Heidrich & Ruprecht von Uckermann of E&Y’s München office.  Although 1/2 of the seminar was a German perspective on US tax legislation, (& it’s always interesting to learn about your own country through the eyes of foreigners), I’ll focus on German tax legislation.  Pardon the high level of generality here, but these issues are very detailed & complex, so I can’t go into greater detail in a relatively short blog entry.

Interestingly, they opened by noting the following:

  • politicians tend to simplify complex tax law issues & trade off tax rate reductions against corresponding decreases in available deductions
  • tax courts overrule poorly drafted tax legislation/regulation
  • tax authorities are required to collect taxes, even on poorly drafted legislation & with resource constraints
  • tax compliance is becoming increasingly cumbersome
  • it’s the taxpayer who is in the eye of the storm

Apparently tax evasion is a big topic in Europe these days.  Fired Swiss bank employees copied bank information on private customers & are offering to sell this information to foreign governments.  German citizens can escape prosecution if they voluntarily disclose past transgressions beforehand to German tax authorities.  They also told the story of an American doctor in Virginia who tried to avoid having a Swiss inheritance be detected by sending it over in 26 FedEx packages, but the delivery service turned him in.

re: inbound investments from the US to Germany, the following rules changes are coming:

  • interest barriers-higher deductions are possible, but there are compliance issues
  • changes of ownership-affect net operating losses & loss carryforwards
  • Real Estate Transfer Tax-can be eliminated with group restructuring exception
  • relief for electronic bookkeeping outside of Germany, but only within European Union-German tax authorities must maintain access to tax data 24/7
  • German anti-treaty shopping-requires relevant economic substance for partial/full withholding tax exemptions

re:  outbound capital from Germany, these issues are changing:

  • repatriation of profits from Germany to US-dividend exemptions & withholding tax reductions
  • foreign exchange-value of assets changes due to foreign exchange (translation) exposures results in windfall profit tax
  • transfer pricing-of German trademarks/brands

Changes in treaties are leading to reductions in withholding taxes.  Ernst & Young offers planning ideas to address all of these tax issues in Germany.  Consult their website above for specific advice.

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