Germany: Expansion of list of non-cooperative jurisdictions, implications for measures against tax havens

Countries added to EU black list on 14 February 2023 will soon be listed in the Tax Haven Defence Act

Countries added to EU black list on 14 February 2023 will soon be listed in THDA

The Act Combating Tax Avoidance and Unfair Tax Competition (Tax Haven Defence Act or THDA) which governs measures against business relationships with non-cooperative tax jurisdictions became effective 1 January 2022.

Twelve non-cooperative tax jurisdictions are currently listed in the THDA: American Samoa, Anguilla, Bahamas, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands and Vanuatu. The EU “black list” does not apply immediately for purposes of the THDA—a tax jurisdiction must first be included in a national regulation before the THDA becomes applicable with respect to that jurisdiction. However, it can be assumed that the countries added to the EU black list on 14 February 2023 (British Virgin Islands, Costa Rica, Marshall Islands and Russia) will soon be listed in the THDA.

If a tax jurisdiction is added to the THDA, the defensive measures and enhanced cooperation obligations under the THDA related to that jurisdiction generally apply from the beginning of the following year (or financial year). A "step model" is set out for the time of application for specific defensive measures: the prohibition on deducting business and income-related expenses (Section 8 THDA) applies only from the beginning of the fourth year (or financial year) following a country's inclusion in the regulation, while the measures for dividends and sale of shares/ownership interests (Section 11 THDA) apply only from the beginning of the third year (or financial year) following inclusion in the list.

Defensive measures under THDA

  • Inbound: The THDA provides for withholding tax measures (Section 10 THDA) or a prohibition on deducting business-related and income-related expenses for expenses arising from business relationships in or related to a non-cooperative tax jurisdiction (Section 8 THDA). For purposes of withholding tax measures, the foreign person is assumed to have limited tax liability while the domestic taxpayer is assumed liable for deduction of withholding tax. The limited tax liability of the person, association of persons or pool of assets resident in the listed country covers income from financing arrangements, insurance or reinsurance benefits, trade in goods or services and, since 1 January 2023, income from the granting or sale of rights that are entered in a domestic public book or register ("register cases").
  • Outbound: Tighter CFC rules (Section 9 THDA) have been introduced for investments in a company in a listed country and cash flows from a listed country, while privileges and income tax treaty exemptions for dividends and capital gains (Section 11 THDA) have been abolished. Following the tighter CFC rules, a foreign entity with all of its income, which is subject to low taxation overall, shall be deemed a controlled foreign company (CFC), irrespective of the activity of income, whether it satisfies the motive test or the exemption threshold for mixed income.

Other defensive tax measures in relation to non-cooperative jurisdictions

  • DAC6: Cross-border tax arrangements are reportable in Germany only if a hallmark is satisfied. Such a hallmark relates to specific cross-border payments between two or more affiliated entities if the payment recipient is resident in a jurisdiction included on the list of third countries that are classified by the EU Member States or the OECD as non-cooperative jurisdictions. In contrast to the THDA, this provision refers directly to the EU black list, which becomes valid upon being published in the EU official journal. The most recent additions to the EU black list announced on 14 February 2023 were published in the EU official journal and thus became effective on 21 February 2023. Therefore, it is not necessary for the newly listed countries to be included in a national "German" list, and those countries became part of Germany’s DAC6 list as of 21 February 2023.
  • Public country-by-country (CbC) reporting: The government on 7 December 2022 issued a draft law for the implementation of Directive (EU) 2021/2101 requiring the disclosure of income tax information by standalone undertakings resident in Germany and ultimate parent undertakings with global revenue or consolidated revenue of more than €750 million in each of two consecutive financial years. The disclosures are to be made separately for each EU/EEA Member State. For third countries, however, disclosure is presented on an aggregated basis unless the third country is on the EU black list in the reporting period on 1 March. In such cases, the disclosures are also to be made separately.

Read a March 2023 report [PDF 376 KB] prepared by the KPMG member firm in Germany


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