BMF publishes draft for an Annual Tax Act 2010

The Federal Ministry of Finance (BMF) recently published a draft for an Annual Tax Act 2010. The draft includes technical and procedural changes in all areas of taxation. Details relating to the timing of the legislative process are not yet known, but the Lower House of Parliament is expected to begin debate before the summer break, with the legislative process finalized by fall. Most changes are expected to have legal effect as from FY 2010. 

Taxpayers should closely monitor the legislative process, but should not take any action yet, given that more changes are possible during the legislative process. 

The most important amendments for corporate taxpayers include the following:

• Transferring electronic bookkeeping abroad would be made easier. In certain cases, it would be possible for a German company or German permanent establishment to apply to relocate its bookkeeping to a non-EU country (as a general rule, it is currently only possible to relocate bookkeeping to an EU/EEA country). The draft also would abolish the requirement that the foreign country to which the bookkeeping is transferred must consent to electronic access for the German tax authorities, as this resulted in significant practical difficulties. Taxpayers still would have to disclose the physical location of the IT system and the German tax authorities would still need to be able to access the system electronically. Taxpayers applying for a relocation of bookkeeping would need to have a good history of tax compliance to be eligible for the concession.

• The German CFC rules would be further restricted. If enacted as planned, the definition of what constitutes “low taxation” for German CFC purposes would be broadened to take into account tax credits and tax refunds at the shareholder level when determining whether the effective tax rate abroad falls below the 25% threshold. According to the official explanations to the draft, this change specifically targets taxpayers that earn passive income via corporate entities in Malta, because these entities should currently fall outside the German CFC rules as a result of certain features of the Maltese tax system.

• The 40% refund of withholding tax for nonresident and non-treaty protected corporate taxpayers would be broadened to include withholding tax on all investment income. Given that the 40% refund is subject to the anti-treaty shopping rule, its practical relevance has been proven to be relatively limited.

• Changes to the German procedural rules would give the BMF the authority to publish decree laws to transpose into domestic law general memoranda of understanding (MOUs) between tax authorities under the mutual agreement procedure in tax treaties. This would make MOUs legally binding on the courts (currently MOUs are only legally binding on the tax authorities).

Various other changes are included in the draft, the most significant of which relate to the taxation of investment funds, the rules on the flat tax on investment income for individuals, VAT and the Inheritance Tax Act. 

If you have any questions, please contact the authors of this article at gtln@deloitte.de or your regular Deloitte contact.