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German Tax and Legal News

New guidance issued on anti-treaty shopping rule

The Ministry of Finance (BMF) recently published guidance that offers some additional – and welcome – explanations about the German anti-treaty shopping rule.

Under the anti-treaty shopping rule, tax treaty or benefits under the EC Parent-Subsidiary Directive (PSD) will be denied if and to the extent the company’s shareholder would not have been entitled to the benefits if it invested directly in the German subsidiary and at least one of the following conditions is satisfied:

  • There are no economic or other relevant business reasons for the interposition of the foreign company; or 
  • The foreign company does not generate more than 10% of its gross receipts from its own business activities; or 
  • The foreign company does not have adequate business substance to engage in its trade or business (mere administrative functions, outsourced activities or activities carried out by related parties in the same jurisdiction would not be taken into account in determining business substance).

These restrictions do not apply if the foreign company is listed on a stock exchange and its shares are regularly traded or if it is subject to the German Investment Tax Act (broadly speaking, investment funds, mutual funds and similar vehicles investing in risk diversified assets).

Chains of interposed companies

In its original guidance, issued in 2007, the German tax authorities did not formally address the question of how to deal with chains of interposed companies with limited substance; this issue was addressed only on an informal basis in response to taxpayer inquiries.

The tax authorities have now issued official guidance on this matter, which confirms past and current tax authority practice:

Based on the new official guidance, no adverse consequences will arise from the interposition of several foreign holding companies with only limited substance provided all holding companies in the ownership chain are EU-based or tax treaty country corporations qualifying for benefits under the PSD or a tax treaty (i.e. the anti-treaty shopping rule will be tested at each level in the chain). Thus, a direct foreign shareholder that lacks substance must, in principle, have formal entitlement to benefit under the PSD or a treaty. If this is the case, the foreign corporate shareholders one level above the direct foreign shareholder will be reviewed individually with regard to the above requirements (i.e. formal entitlement and substance).

If one of the interposed holding companies lacks the appropriate formal entitlement to the PSD or tax treaty benefits, the benefits will be denied irrespective of the substance of this entity.

Exception for listed companies

In the original guidance, the German tax authorities stated that the exception for listed companies and for investment vehicles will apply only if the direct shareholder of the German entity met the requirements. The tax authorities have now revised this position and will look through to a potential indirect shareholder to determine whether the company can rely on the exception. An indirect shareholder that relies on the exception, however, still must be formally entitled to the same treaty or directive benefits to rely on the exception.


Although the recent guidance on the anti-treaty shopping rule mostly confirms positions already taken by the tax authorities in the past, the guidance is generally favorable for taxpayers. In particular, taxpayers whose indirect shareholders are able to rely on the listed companies exception or the exception for investment vehicles should welcome the amendment to the original guidance since this should improve their position when filing for an exemption certificate or a withholding tax refund.

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

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