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German Tax Monthly
December 2014
December 2014
German Tax Monthly
1.
Counterstatement by the German Federal Government to the
Bundesrat opinion on the Customs Code Alignment Law
(“2015 Tax Act”)
On 12 November 2014, the Federal
Government published its counterstatement to the Bundesrat opinion on
the government draft of a Law regarding the Alignment of the General Tax
Code to the European Customs Code
and the amendment of other rules and
regulations (Customs Code Alignment
Law). The extent of the proposed
amendments shows that this law constitutes the de facto “2015 Tax Act”. In
the following we will summarize the
most important contents of the
Bundesrat opinion, followed by the
respective counterstatement submitted
by the Federal Government.
Detrimental Change of Ownership (§ 8c
KStG) – Extension of the Group
Exemption Provision
The Bundesrat suggests extending the
so-called “group exemption provision”
of § 8c KStG – Corporate Tax Income
Law – to group internal acquisitions
with participation of the group’s parent
company (TopCo). This is meant to
benefit acquisitions by or of the TopCo
of the group that have not been covered by the present wording of the
group exemption provision. In addition,
sole proprietorships as well as partner-
ships shall be considered TopCos of
the group. The amendments shall be
applied retroactively to detrimental
changes in ownership after 31 December 2009. The Federal Government
will review the proposal made by the
Bundesrat.
Gains on the Disposal of Portfolio
Investments
In the course of the further legislative
process, the Bundesrat considers a
review of the tax exemption (§ 8b
KStG) of gains derived from the disposal of portfolio investments (less than
10%) as essential. While profit distributions from portfolio investments are
generally no longer tax exempt for
corporations (§ 8b (4) KStG), gains on
the disposal of portfolio investments
continue to be tax exempt (§ 8b (2)
KStG). The Bundesrat sees an urgent
need for legislative action in order to
avoid tax structures that would have
arisen in practice.
The Federal Government will meet the
Bundesrat’s request for review. However, the Federal Government objects
to the implementation of a relevant
regulation in the present legislative
process. Rather, the future taxation of
gains on the disposal of portfolio investments shall be newly addressed
without prejudice to the outcome in
Content
1. Counterstatement by the German
Federal Government to the
Bundesrat opinion on the Customs
Code Alignment Law (“2015 Tax
Act”)
2. Germany and the United Kingdom
present Joint Proposal on Patent
Boxes
3. Federal Ministry of Finance: Guidance regarding serious Doubts about
the Constitutionality of the Earnings
Stripping Rules
4. Valuation of Inventories - LIFO
Method (Draft BMF Guidance)
5. BFH (I R 58/12): Share Value Adjustment Loss and Acquisition Loss
in Case of an Upstream Merger of
Life Insurers
6. Lower Tax Court of BerlinBrandenburg (6 K 6085/12): Transfer
of Civil-Law Ownership in Material
Operating Assets in the Case of a
Split-Off of a Branch of Activity
Responsible
Dr. Martin Lenz
[email protected]
Published by
KPMG AG Wirtschaftsprüfungsgesellschaft
The Squaire, Am Flughafen
60459 Frankfurt/Main, Germany
Editorial Team
Prof. Dr. Gerrit Adrian
Alexander Hahn
Corinna Landua
Andreas Martin
Christian Selzer
Corinna Tigges
Dr. Dennis Weiler
© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative („KPMG International“),
a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.
2 / German Tax Monthly / December 2014
connection with the fundamental reform of the taxation on
investments.
fying expenditures are all costs connected directly to the
development of the intangible property.
Deductions of Business Expenses in the Case of Hybrid
Mismatch Arrangements and Double Dips
Germany and the UK now propose the application of the
modified approach with some amendments. These amendments seek to address concerns expressed by some countries regarding the modified approach so as to further the
negotiations in the context of the BEPS project.
The Federal Government, according to its counterstatement,
basically consents to the proposal made by the Bundesrat
regarding the deduction of business expenses in the case of
hybrid mismatch arrangements and double dips. The proposal shall be included in the deliberations in the context of
the implementation of the BEPS projects. This leaves the
date for the de facto implementation of such regulation open.
Other Amendments
The other amendments affect the assumption of debt and
several standards of the Real Estate Transfer Tax Act and
the Reorganization Tax Law. The Federal Government will
review these proposals.
Outlook
The counterstatement submitted by the Federal Government
allows first conclusions to be drawn about which of the
Bundesrat requests will be adopted in the draft bill and which
items require further examination. Next, the Finance Committee of the Bundestag will prepare its recommendations for
a decision.
Subsequently, Bundestag and Bundesrat must approve the
law. The Bundesrat could give its approval at the meeting
scheduled for 19 December 2014. In this case, the legislative process could be completed by the end of this year as
planned.
2.
Germany and the United Kingdom present Joint
Proposal on Patent Boxes
In the context of the G20/OECD Base Erosion and Profit
Shifting project (BEPS), Germany and the United Kingdom
have presented a joint proposal for the negotiations on new
preferential IP regimes (so-called patent boxes).
The principle of the patent box was introduced in several
European countries before and allows companies to claim a
reduced rate of tax on revenues from patented inventions or
patent-like rights. The political intention behind the preferential treatment is to provide incentives for innovations. As a
rule, patent box eligibility only applies to legal persons liable
to corporate income tax that hold patents granted by their
national patent office or the European Patent Office.
According to the OECD Action Plan, patent box regimes are
to be restricted so as to prevent abusive profit shifting (e.g.
by using mailbox companies in another country). The modified approach of the OECD says that tax breaks should only
be granted to companies that are able to track and trace the
expenditures for research and development actually incurred
in the development of the intangible property. The proportion
of income that may benefit from a preferential tax regime is
the same proportion as that between qualifying expenditures
and overall expenditures for the patent. In this context, quali-
An integral part of the proposal is an uplift of qualifying expenditure by means of a changed calculation formula. Further to the OECD approach, companies are to be able to
obtain a maximum 30% uplift of their qualifying expenditure
for related party outsourcing or acquisition costs with the
30% uplift referring to the overall expenses for both, outsourcing and acquisition costs.
Finally, according to the proposal of Germany and the UK,
the OECD Forum on Harmful Tax Practices (FHTP) should
work to reach agreement by June 2015 on a practical and
proportionate tracking and tracing approach. The focus of
this should be on developing practical methodologies that
companies and tax authorities can adopt. Moreover, the
proposal requests transitional mechanisms for intellectual
property from existing into new regimes, and special rules for
previous expenditure.
The proposal was already presented at the Forum on Harmful Tax Practices in its session of 17-19 November.
3.
Federal Ministry of Finance: Guidance regarding
serious Doubts about the Constitutionality of the
Earnings Stripping Rules
In a ruling of 18 December 2013, the Federal Tax Court
(BFH) decided that there are doubts about the constitutionality of the earnings stripping rules and therefore granted the
taxpayer suspension of execution of a tax assessment notice
(see May 2014 edition of German Tax Monthly).
According to the earnings stripping rules, the deduction of
interest as business expenses is limited under certain circumstances. When a taxpayer applies to the tax office for
suspension of execution he can achieve that the payment of
the taxes assessed in the assessment notice is suspended
until further notice. The precondition is that there are serious
doubts about the lawfulness of the disputed assessment
notice. In addition, the taxpayer must have a legitimate interest in the suspension of execution that deserves priority
over the public interest in the enforcement of the law.
Whether or not a suspension of execution is granted thus
depends on each individual case. If the tax office refuses to
grant a suspension of execution of a tax assessment notice,
the taxpayer may request a judicial review of the refusal.
In its guidance of 13 November 2014 the Federal Ministry of
Finance (BMF) communicates that it does not regard the
doubts about the constitutionality of the earnings stripping
rules expressed by the BFH as justified. The BMF explains,
in particular, that the tax deductibility of interest expenses is
not finally denied, but only spread out over a period of time.
© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative („KPMG International“),
a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.
3 / German Tax Monthly December 2014
The ruling of the BFH may therefore not be applied beyond
the specific case decided here.
The implication for the taxpayer is that corresponding applications for suspension of execution in cases concerning the
earnings stripping rules will be denied in the future. Because, from the point of view of the tax authorities, the precondition for granting a suspension of execution is not met,
i.e. that there are serious doubts about the lawfulness of the
disputed tax assessment notice.
4.
Valuation of Inventories - LIFO Method (Draft BMF
Guidance)
The Federal Ministry of Finance (BMF) issued a new draft
guidance on the application of the so-called LIFO (last in first out) method. The application of the method is principally
still admissible. However, this requires that the valuation
complies with German GAAP under commercial law (HGB).
This means that at the end of the fiscal year full stock has to
be taken of the quantities of all business assets. Furthermore, the LIFO method has to lead to a valuation simplification. Under commercial law, the LIFO method may be applied to raw materials and supplies, work in progress, finished goods, and goods for resale.
Under tax law, the application of the LIFO method requires
that it is possible to form groups of similar-type business
assets. Business assets are regarded as similar if they belong to the same type of goods or have the same function.
For purposes of tax law, too, the LIFO method is required to
contribute to a valuation simplification. The application of the
LIFO method for tax purposes is independent of its application for commercial law purposes.
The BMF addresses three application cases of the LIFO
method separately. The use of the LIFO method is generally
not permissible for perishable inventory. Neither is the use
of the LIFO method permissible, where the individual acquisition costs of merchandise can be easily determined, e.g. with
the help of an IT system. This does not apply, where further
efforts or computation or determination steps are necessary
for determining these costs. Whereas the application of the
LIFO method is always permissible for processed/finish
treated goods. This also applies where a clear distinction
would be possible. This also includes the associated raw
materials and supplies as well as work in progress.
5.
BFH (I R 58/12): Share Value Adjustment Loss and
Acquisition Loss in Case of an Upstream Merger of
Life Insurers
On 30 July 2014 the Federal Tax Court (BFH) ruled on the
tax-effective reduction of the book value of the shareholding
to the lower fair market value as well as on the acquisition
loss in the case of an upstream merger of a subsidiary into
its parent corporation (both life insurance corporations). The
year at issue was 2006.
According to the BFH judgment, the book value of the shares
in the transferring company has to be reduced to the lower
fair market value before the merger in a scintilla temporis.
However, the resulting share value adjustment loss must
principally not be taken into account when determining income, since it is a result of the dividend taxation regime
(§ 8b KStG). The case at issue was special in so far as the
corporations involved were both life insurers. This meant
that the case met the requirements for an exception and that
it was legitimate to fully deduct the share value adjustment
loss as business expense.
The receiving corporation first determined the share value
adjustment loss and in a second step an acquisition loss.
However, in this respect the BFH concluded that such an
acquisition loss may not be recognized by the receiving corporation, since § 8b KStG is not applicable. The BFH opined
that it did not play a role in this regard that the receiving
corporation was a life insurance corporation.
In conclusion the BFH therefore did not share the opinion of
the tax authorities concerning the tax-effectiveness of the
share value adjustment loss as expressed in the wording of
the pertinent passage in the Reorganization Tax Decree
dated 11 November 2011 (margin number 12.03 p. 4 in conjunction with 04.06 p. 1). Whereas the judgment confirmed
the legal interpretation of the tax authorities concerning acquisition losses as expressed in margin number 12.06 pages
1 and 2.
6.
Lower Tax Court of Berlin-Brandenburg
(6 K 6085/12): Transfer of Civil-Law Ownership in
Material Operating Assets in the Case of a Split-Off
of a Branch of Activity
In a decision of 1 July 2014 passed according to the Reorganization Tax Law in the version in force until the year
2006/2007 (Reorganization Tax Law 1995) the Lower Tax
Court of Berlin-Brandenburg ruled that the tax-neutral splitoff of a branch of activity mandatorily requires the transfer of
the civil-law ownership in the material operating assets.
According to the Court, transferring merely the beneficial
ownership is not sufficient.
According to German Reorganization Tax Law, the taxneutral split-off or spin-off of the business assets of a corporation to other corporations requires that the transferred
assets as well as the remaining assets each form a branch of
activity (§ 15 Reorganization Tax Law). According to the
established case law of the Federal Tax Court (BFH), all
material operating assets belonging to the branch of activity
and essential to its functioning must pass to the receiving
entity.
In the case at hand, a limited liability company (A-GmbH)
maintained a commercial business with three production
divisions. In addition, A-GmbH owned several real properties which were used by all three production divisions. By
way of a split-off in 1995 (year under dispute), two of the
three production divisions were transferred to newly incorporated subsidiaries (E-GmbH and F-GmbH). However, civillaw ownership in the real properties was retained by
© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative („KPMG International“),
a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.
4 / German Tax Monthly / December 2014
A-GmbH. Therefore rental agreements were concluded with
E-GmbH and F-GmbH with respect to parts of the real properties. The disputed issue was whether the branches of
activity had actually been transferred, because, according to
the view of the tax authorities, material operating assets - in
the case at issue the real properties - remained with AGmbH.
According to the view of the Lower Tax Court of BerlinBrandenburg, the tax-neutral transfer of branches of activity
requires the passing of the civil-law ownership in the corresponding material operating assets. A transfer of only the
beneficial ownership does not suffice to meet the requirements of § 15 Reorganization Tax Law 1995. In addition, the
Court emphasizes that in the case at issue the requirements
for establishing beneficial ownership were not met anyway,
because neither E-GmbH nor F-GmbH were able to actually
exercise control over the properties by concluding the rental
agreements.
The judgment of the Lower Tax Court of Berlin-Brandenburg
is final. It has to be noted that the Lower Tax Court’s decision for the year under dispute 1995 was passed according
to the law applicable before the new Reorganization Tax Law
entered into force in the version of the SEStEG (Law on
Accompanying Tax Measures for the Introduction of the
European Company and for the Modification of other Tax
Regulations; in force since 7 December 2006). For the law
as currently in force, it is the view of the tax authorities that
establishing beneficial ownership is generally sufficient for
the requirement of transfer of material operating assets (see
Reorganization Tax Decree issued by the Federal Ministry of
Finance (BMF) on 11 November 2011 margin number
15.07). So far, the BFH has not issued an opinion on this
matter, neither with regard to the new nor the old version of
the Reorganization Tax Law. At least there is a decision by
the BFH (of 7 April 2010, ref. no. I R 96/08) regarding old law
according to which providing a mere right to use and enjoyment (such as under a rent or lease - as in the case at issue)
does not suffice to meet the requirement of transfer of all
material operating assets. Thus it remains open for the law
as currently in force and bearing in mind the decision of the
Lower Tax Court of Berlin-Brandenburg, whether and under
which circumstances tax case law regards the transfer of
beneficial ownership as sufficient.
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© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative („KPMG International“),
a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.