Author: Dr Henning Frase

Germany’s new royalty barrier rule (Lizenzschranke)

August 2, 2017 / / 0 Comments

The German legislator has introduced a Section 4j to its Income Tax Act (§ 4j EStG). The purpose of the new provision is to limit the deductability of royalty payments to non-resident creditors for German individual taxpayers as well as corporations and (tax-transparent) partnerships.

The new provision is a result of anti-abuse discussions on the international level (OECD, EU) triggered through structures used by some multi-nationals. IKEA, Starbucks, Apple, Microsoft and others have become notorious for their deemed “profit-shifting” by means of royalty structures.

Well, the new German “royalty threshold” provision is a toothless tiger. It will hardly have any effect. I will explain in some detail in one of the next posts.

Does Germany have a right to tax settlement payments received from abroad?

August 6, 2015 / / 0 Comments

1. INTRODUCTION

Some people that move to Germany (“expats” or returnees) expect outstanding compensation or severance payment from an earlier employment or activities abroad, outside Germany. Does Germany have a right to tax such payments? The answer is: That depends. (continue reading)

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A never-ending story: The German inheritance and gift tax law (Erbschaftsteuergesetz)

May 7, 2015 / / 0 Comments

1. INTRODUCTION

Inheritance taxes can be traced back to ancient Egypt and have been around in Germany since 1873. As in other countries, inheritance (or: estate) taxes are subject to constant political debate and changes. Today, German inheritance and gift taxes rates are as high as 50%, but tax-exemptions for the transfer of business assets have been introduced in order to not strangulate family-owned businesses. On 17 December 2014 the German constitutional court held the German Inheritance and Gift Tax Law (Erbschaftsteuergesetz, ErbStG) to be unconstitutional. According to the ruling, the treatment of specific types of assets by the legislator was not in line with the imperative of equal treatment of taxpayers, pursuant to Article 3 of the German constitution. Hence, in order to remain in force, the ErbStG needs to be amended until the end of 30 June 2016. The latest revision (not the first one!) is already under way.

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