25.06.2024MOF publishes final guidance on tax measures in regard to noncooperative jurisdictions
Final guidance includes several updates compared to the original 2023 draft version
On 14 June 2024, the German Ministry of Finance (MOF) published its final guidance on the application of the German anti-tax avoidance measures regarding noncooperative jurisdictions. These measures were introduced in 2021 as part of the Tax Haven Defense Act (see GTLN dated 03/02/23) as a response to the European Council’s guidelines issued at the end of 2019 encouraging EU member states to implement legislative measures designed to impose specific penalties on jurisdictions placed on the EU list of noncooperative jurisdictions for tax purposes (“EU list”). Draft guidance was published on 30 November 2023 for comments from interested parties (see GTLN dated 05/12/23).
Compared to the draft version, the final guidance has been significantly revised, in particular with regard to:
- Affected transactions (section 7 Tax Haven Defense Act): the explanations were expanded, and additional examples were included into the final version of the guidance.
- Denial of deduction for business expenses (section 8 Tax Haven Defense Act): the explanations were specified and expanded.
- Tightened controlled foreign company (CFC) rules (section 9 Tax Haven Defense Act): the original explanations were deleted and a reference to the administrative guidance related to the application of the German CFC rules dated 22 December 2023 (recitals 201 to 209) was included.
The final guidance (which now consists of 34 pages compared to 31 pages of the draft guidance) provides valuable insight into how the tax authorities are applying the rules and interpreting the provisions of the law. The German rules include all four types of defensive measures provided for in the European Council’s guidelines, even though the guidelines provide an obligation for EU member states to implement only one of these types of measures.
Based on the most current EU list dated 20 February 2024, the following 12 jurisdictions are included: American Samoa, Anguilla, Antigua and Barbuda, Fiji, Guam, Palau, Panama, Russia, Samoa, Trinidad and Tobago, US Virgin Islands, and Vanuatu. It is expected that the next annual update of the German list of noncooperative jurisdictions (expected mid-December 2024) will include these jurisdictions.
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