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Anti-hybrid and anti-double-dip rules unlikely to be implemented
The federal government has announced that it does not intend to support the proposed introduction of an anti-hybrid rule and an anti-double-dip rule or the introduction of a 10% minimum shareholding to qualify for the participation exemption on gains from the sale of shares.
In a statement issued November 12, 2014, Germany’s federal government announced that it does not intend to support the recently proposed anti-hybrid/anti-double-dip rules or the introduction of a 10% minimum shareholding to qualify for the 95% participation exemption on gains from the sale of shares (see tax alert dated November 7, 2014).
The upper house of parliament (Bundesrat) approved a comment on the draft tax bill on November 7, 2014 the comment includes a new anti-hybrid rule and other measures. The comment is part of a legislative process initiated by the federal government in September, but the version approved by the upper house includes several new measures, including the following:
- In response to the OECD base erosion and profit shifting (BEPS) initiative, a deduction for business expenses would be disallowed to the extent there is no corresponding income inclusion (deduction/no-inclusion) or to the extent there is a reduction of the taxable income in another country for the same expenses (double deduction).
- A 10% minimum shareholding requirement would be introduced to qualify for the 95% participation exemption on gains from the sale of shares.
The federal government has now announced that it will not support the introduction of the anti-hybrid/anti-double dip rules at this time. Instead, the government wants to wait until the final BEPS reports are issued in 2015 and measures are discussed and/or implemented at an international level. This announcement comports with the policy statement issued by the government at the end of 2013.
The government also has taken the position that any proposed changes to the participation exemption should be part of a broader reform of investment taxation. Such a reform will require detailed discussions and the participation of the federal states.
As a result of the federal government announcement, it seems unlikely that the anti-hybrid/anti-double dip measures and the proposed changes to the participation exemption will be approved as part of the current initiative. A final vote by the lower house of parliament on the current proposal is expected on 19 December.
In the meantime, government officials have confirmed that a task force will be appointed to come up with a proposal on how to implement the BEPS recommendations into German tax law. Legislative action on this initiative is not likely until in 2016.