Tax Haven Prevention Act (StAbwG) – Draft published by the Federal Ministry of Finance
On 30 November 2023, the Federal Ministry of Finance published a draft letter on the application of the Tax Haven Defence Act (StAbwG). In this letter, the tax authorities comment on practical issues of interpretation and application.
This draft comes just in time for the transposition of the current EU blacklist into the Tax Haven Prevention Regulation, under which new countries and territories will be classified as non-cooperative and will therefore fall within the scope of the Tax Haven Prevention Act.
The current EU blacklist includes the following 16 countries and territories: American Samoa, Antigua and Barbuda, Anguilla, the Bahamas, Belize, Fiji, Guam, Palau, Panama, Russia, Samoa, the Seychelles, Trinidad and Tobago, the Turks and Caicos Islands, the US Virgin Islands and Vanuatu.
In particular, the inclusion of Russia in the list of non-cooperative tax jurisdictions is likely to increase the relevance of the measures set out in the StAbwG.
The draft letter from the Federal Ministry of Finance addresses, amongst other things, the following points:
- Transactions covered, Section 7 of the StAbwG
The anti-abuse measures described below relate to business relationships or shareholdings that taxpayers maintain in, or in connection with, a non-cooperative tax jurisdiction. It is clarified that business transactions carried out by, or through, a partnership or a permanent establishment are also covered.
Within the framework of the measures set out in Sections 9 and 11 of the StAbwG, this also applies to indirect shareholdings, subject to the conditions specified therein. - Prohibition on the deduction of business expenses and income-related expenses, Section 8 of the StAbwG
Pursuant to section 8, first sentence, of the StAbwG, expenses arising from business transactions within the meaning of section 7 of the StAbwG may not be deducted from income. Deductions for such expenses are classified as current expenses and are therefore, in principle, subject to the prohibition on deduction. - Stricter additional taxation, Section 9 of the Tax Avoidance Act (StAbwG)
Where persons subject to unlimited tax liability hold a stake in a foreign company within the meaning of Section 7(1) of the Foreign Tax Act (AStG) which is resident in a non-cooperative tax jurisdiction, that company is deemed to be an intermediate company in respect of its total income, which is subject in its entirety to low taxation within the meaning of § 8(5) of the AStG („full additional taxation“). - Withholding tax measures, Section 10 of the StAbwG
The draft also addresses the withholding tax measures under Section 10 of the StAbwG. The list of income types contained in this provision is intended to be subsidiary to that set out in Section 49(1) of the Income Tax Act (EStG). Accordingly, Section 10 of the StAbwG applies only insofar as income is not already covered by Section 49 of the EStG. However, the tax authorities are required to order tax deduction in accordance with Section 50a(7) of the Income Tax Act (EStG) whenever a withholding tax measure under Section 10 of the Tax Withholding Act (StAbwG) does not apply solely becausebecause domestic income within the meaning of Section 49(1) of the Income Tax Act (EStG) is present. - Denial of tax exemption for dividends and capital gains, Section 11 of the Tax Relief Act (StAbwG)
Section 11(1) of the StAbwG also sets out a number of grounds for exclusion from potential tax exemptions. For example, the tax exemption under Section 8b(1), first sentence, of the Corporation Tax Act (KStG) for profit distributions and other payments within the meaning of Section 20(1), Nos. 1, 2, 9 and 10(a) of the Income Tax Act (EStG), provided that these are made by a corporation resident in a non-cooperative tax jurisdiction.
The same applies where tax exemptions, profit distributions and other payments within the meaning of Section 20(1)(1), (2), (9) and (10)(a) of the German Income Tax Act (EStG) are granted on the basis of a double taxation agreement, provided that the provisions of the relevant double taxation agreement are comparable to Section 8(1), first sentence, of the German Corporation Tax Act (KStG).
Similarly, the tax exemption under Section 8(2), first sentence,1 of the Corporation Tax Act (KStG) and comparable tax exemptions under tax treaties for gains arising from the disposal of shares in a corporation or partnership, the proceeds of which constitute income for the recipient within the meaning of Section 20(1)(1), 2, 9 and 10(a) of the Income Tax Act (EStG). - Enhanced obligations to cooperate, Section 12 of the StAbwG
Under Section 12 of the StAbwG, persons subject to unlimited or limited tax liability are subject to obligations to cooperate that go beyond those set out in Section 90 of the AO; these primarily include records of the business relationship, the underlying contracts, the functions performed, business strategies, and market and competitive conditions.
If these obligations to cooperate are breached to a more than trivial extent – for example, by failing to submit the relevant information to the competent tax authorities – surcharges may be imposed in accordance with section 162(4) of the German Fiscal Code (AO).
The draft was sent to various associations for comment, and they were given until 9 January 2024 to submit their comments. It is expected to be published during the first half of 2024.
Should you be unsure as to whether, and if so to what extent, any foreign business interests you may have could be affected by these measures, our solicitors and specialist tax lawyers, as well as our tax advisers, will be happy to advise you.