International
Asia Pacific
EMEA
North America
Latin America
Under the new German anti-treaty shopping rules, it has become more difficult to obtain withholding tax (WHT) relief for dividends/royalties in many holding structures, including those where WHT relief was granted under the old rules. This could impact many structures where cash is going to be repatriated from Germany, or where a German entity pays royalties abroad.
As example for the tightening of the rules, the so-called look-through approach, which in the past oftentimes relatively easy provided for WHT relief, can under the new rules in many structures not be applied anymore. Furthermore, the requirements for substance-based entitlement to WHT relief are interpreted strictly by the German tax authorities. In their view, holding companies conducting so-called passive participation management are not entitled to WHT relief even in EU-structures. In this respect, the German tax authorities also seem to ignore recent taxpayer-friendly case law of the Lower Tax Court of Cologne (judgement as of 16 February 2022, 2 K 1483/19).
The newly introduced Principal-Purpose-Test (PPT) could theoretically provide relief in many structures. But it is very difficult to predict whether it is possible to convince the Federal Central Tax Office (CTO) that the PPT is met because the FCTO seems to be unsure how to apply the PPT in practice. In addition, first experience shows that the German tax authorities request extensive supporting documentation in connection with the taxpayers attempt to evidence that the requirements for WHT relief are met.
Consequently, it has become even more crucial for taxpayers to properly document business activities of relevant holding companies as well as non-tax reasons for setting up relevant structures. Such documentation should be prepared well in advance to be equipped for upcoming WHT relief procedures. Furthermore, obtaining WHT relief is time consuming, so that applications for relief should be prepared properly and started with sufficient lead-time.
Click here to read the full alert.
Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.
Are you sure want to delete comment ?
Scan this QR Code to share this content
