Your advisers for international tax law

Expert advice from a domestic entrepreneur’s perspective:

In a globalised world, virtually every private limited company, joint stock company, and every sole proprietorship has connections abroad in some shape or form. All too soon, these dealings also give rise to complex tax issues for private limited companies, joint stock companies and other company forms: What is the best way to design my company’s expansion abroad? What do I need to consider when supplying to customers abroad? What do I need to consider when withdrawing from Germany? What do I need to observe when seconding employees abroad? How can I avoid double taxation? Our advisers for international tax law are on hand to provide help and advice

• Seconding employees abroad

  Employee secondment (often also referred to as posting of workers) is typically defined as a time-limited relocation of an employee to an affiliated company abroad (or to an affiliated domestic company from abroad). This process frequently raises the following questions:

  • Does the taxing right rest with the so-called sending country or the country in which the activity is carried out (taxing right pursuant to the DTA)?
  • Do certain elements of the income need to be taxed at home or abroad (allocation of wages pursuant to the DTA)?
  • Is foreign income tax-free?
  • Does the obligation to pay social security contributions apply at home or abroad?
  • Can direct and indirect expenses incurred in connection with the secondment in the sending country (by the local employer) or the country in which the activity is carried out (by the receiving affiliated company) be deducted as operating expenditure (transfer price allocation).
• Profit allocation for permanent establishments abroad

  Our experienced advisers for international tax law know: in terms of tax on profits, income allocation above all plays a role in circumstances that fall under the regulatory area of a double taxation agreement (DTA), because the permanent establishment abroad is exempt from German taxation. Even if there is no DTA between Germany and the country in which the permanent establishment is located, an appropriate profit allocation is required in terms of trade tax (tax concession under a double tax agreement). Through the incorporation of the Authorised OECD Approach (AOA) into German law and the enactment of the German Ordinance on the allocation of profits of permanent establishment (BsGaV), the income allocation between the other company (until now: head office) and the permanent establishment has shifted significantly. In practice, however, the issue as to whether the participating country involved also applies the principles of the AOA will give rise to issues. Here, it needs to be determined whether the DTA or AOA has been applied.

• Taxation of add-backs for foreign company participations

  If a resident taxpayer establishes or acquires a legal entity abroad, they are creating an independent taxable entity. The earnings generated by this company only impact the domestic tax situation if such earnings are paid out to the resident taxpayer. The same applies to the sale of the resident taxpayer’s holdings. If this payout is reinvested, the German tax authorities come away empty-handed. The taxation of add-backs aims to prevent general taxpayers from transferring their foreign earnings to a company capable of paying taxes which has its registered office in a low-tax jurisdiction and is not taxable in the taxpayer’s resident country and thus reaping tax benefits.

  The regulations governing the taxation of add-backs may, under certain circumstances, include this tax deferral. This can occur through so-called passive income, generated through the foreign company, irrespective of the appropriation of earnings, being directly attributable to the domestic shareholders. Through this type of add-back, the shielding effect removes the foreign company from any German taxation requirements as the foreign earnings are subject to national taxation. As a means of justifying this add-back, the legislator cites the combating of tax abuses. In total, four preconditions must be met for foreign earnings to be assessed as income for a resident taxpayer: + The company must be foreign-based. + It must be controlled by domestic shareholders, or, where applicable, indirectly by a private limited company (GmbH). + The foreign company must achieve earnings through passive acquisition + Passive earnings must be taxed at a low rate. These preconditions pertaining to the taxation of add-backs also impact holdings in foreign partnerships or permanent establishments. In this context, however, any switch from the actual tax exemption defined under the DTA to the tax credit method has a legal consequence. As advisers for international tax law, we are familiar with every detail and alternative concerning the taxation of add-backs.

• Assistance with transfer pricing documentation

  Profit from the expertise that our experienced advisers for international tax law provide on all matters concerning transfer pricing documentation. In terms of international tax law, a transfer price is the price that an affiliated company (e.g. subsidiary) or entity without independent legal status (permanent establishment, partnership) charges to another business unit within the same company for a product, intermediate product or service. Transfer prices serve as a control instrument and a means of simplifying inter-company accounting, calculations and planning support. In taxation terms, the aim of transfer prices is to periodically lower the (consolidated) tax quota by transferring profits to the country with the lowest tax rate.

  According to the Foreign Tax Act, the transfer price for a business relationship must, first and foremost, be determined on the basis of arm’s length values. Only once it is not possible to determine arm’s length values, at least to a limited degree, does the taxpayer need to calculate their earnings on the basis of a hypothetical arm’s length principle. In this case, there is a documentation obligation. The taxpayer is required to prepare written documents concerning their tax-related, cross-border business relationships. In this respect, the legal norms pose a greater demand on the taxpayer in terms of their provision of evidence. Failure to comply can potentially result in sanctions.

• Development of cross-border corporate structures

  Direct business, a branch or subsidiary? Our advisers for international tax law can advise you on the best way to structure your overseas involvement.

Sales tax for cross-border services

Virtually every company has business dealings with undertakings abroad or foreign companies. Services are provided to entrepreneurs in EU member states or third countries, or private individuals located abroad. When procuring goods or services from abroad, sales tax circumstances also play an important role. The European Single Market poses numerous special regulations and reporting obligations that domestic entrepreneurs need to comply with. Our experienced advisers for international tax law know every single detail, provide advice on the correct form of accounting, and make all submissions on your behalf.

Expert advice for foreign entrepreneurs:

Complex circumstances require expertise and structuring savvy. Our international tax specialists in Berlin and Munich work with you to develop the solutions you need, including on the following issues:

• Taxation of permanent establishments and branches in Germany

  In terms of tax on profits, income allocation above all plays a role in circumstances that fall under the regulatory area of a double taxation agreement (DTA), because the permanent establishment abroad is exempt from German taxation. We provide expert advice, register your domestic permanent establishment with the revenue authorities, handle your financial and payroll accounting, and prepare all necessary tax returns.

• Establishment or holdings of/in domestic companies

  Our advisers for international tax law advise you on every matter relating to your German subsidiary – from its establishment through to liquidation. In this context, issues concerning the legal form, contractual arrangements, organisation, and financial arrangements for the management play a role, as do financing models, tax structure, and transfer pricing documentation. We handle your ongoing financial and payroll accounting.

• Reduction or avoidance of domestic withholding tax

  Withholding taxes refer to taxes that the state imposes by applying a special procedure, the so-called pay-as-you-earn procedure. Unlike the income tax assessment procedure, through which tax is collected on the basis of tax returns, the state avails of a private individual (undertaking entrusted with tasks of a public authority) who collects (withholds) and pays the tax on its behalf (= tax deductor). The actual tax debtor does not change as a result of this process; the withholding taxes remain direct taxes and, by its very nature, represent a tax debtor’s pre-payments. The term ‘withholding tax’ attributes to the fact that the intermediary individual who is liable to pay the tax is, at the same time, the tax debtor’s contracting partner and thus closest to their source of income. Both individuals, the tax debtor and the tax deductor, are bound by joint liability in order to structure the process as effectively as possible.

  From the perspective of a foreign company, withholding taxes apply to three areas: + income tax law + capital gains tax + international tax law, e.g. in the case of dividends or supervisory board member tax. In many instances, the timely filing of an application can result in withholding tax deductions being avoided or reduced. Our international tax law consultancy will be happy to advise you!

Country-specific areas of focus provided by our advisers for international tax law:

• Austria
• Belgium
• Italy
• Netherlands
• Poland
• Singapore
• South Africa
• Spain
• Switzerland
• United States of America

Expert advice for national residents:

Private individuals also frequently have connections abroad. Tax consequences arise as soon as a holiday home is purchased or someone is seconded abroad as an employee. With our international tax specialists, you have peace of mind. Our advisers for international tax law offer pro-active consultancy services, including on the following matters:

• avoidance of double taxation
• taxation on real estate abroad
• avoidance of exit tax when moving abroad or in the case of succession
• taxation of add-backs for foreign company holdings
• salary taxation and apportionment due to secondment/deployments abroad
• treatment and structuring of severance pay
• taxation of foreign capital gains
• inheritance tax appraisal for international succession and gifts Pensioners living abroad: mail from Neubrandenburg revenue service Anyone drawing a German pension may well be subject to German income tax law. This applies regardless of whether the pensioner resides in Germany or not. The central revenue service of Neubrandenburg sends tax assessments across the globe, which should be examined critically. Our advisers for international tax law represent pensioners in their appeals procedures and ensure that they pay the lowest-possible tax liability in Germany.

Expert advice for foreign residents: Foreign individuals are, under certain circumstances, liable to pay tax in Germany. Our advisers for international tax law in Berlin and Munich know all about this area and structure your case to ensure that you avoid paying double taxation. We prepare your German tax returns on your behalf. The advice provided by our specialists for European and international tax law includes:

• tax advice on double taxation agreements (DTAs)
• taxation on real estate in Germany
• taxation of pensions and retirement benefits from Germany
• taxation and apportionment of salaries when working in Germany
• treatment and structuring of severance pays
• taxation of managing directors and boards of German companies
• reduction or avoidance of domestic withholding tax
• inheritance tax appraisal for successions relating to Germany

Our tax consultancy advises a large number of international clients. When it comes to tax law, our particular focus is on the following countries:

Country-specific areas of focus:

• Austria
• Belgium
• Italy
• Netherlands
• Poland
• Singapore
• South Africa
• Spain
• Switzerland
• United Arab Emirates
• United States of America (USA)

Through our local cooperation partners, we can guarantee that you receive holistic tax advice and assistance for your specific tax situation.

Our advisers for international tax law cater to numerous international clients and provide advice in English, German, Spanish and Polish.