Germany: Draft guidance on CFC rules

Draft guidance on application of Foreign Transactions Tax Act, in particular regarding taxation of controlled foreign corporations

Draft guidance on controlled foreign corporations rules

The Federal Ministry of Finance (BMF) on 20 July 2023 published draft guidance on application of the Foreign Transactions Tax Act (FTTA), in particular regarding the taxation of controlled foreign corporations (CFCs).

The draft guidance is intended to adapt the existing BMF guidance of 14 May 2004 on application of the FTTA to the current legal situation. The Act on the Implementation of the Anti-Tax Avoidance Directive (ATAD Implementation Act of 25 June 2021, Federal Law Gazette I 2021, p. 2035) in particular resulted in extensive changes to exit taxation (Section 6 FTTA) and CFC taxation (Sections 7 to 13 FTTA).

With 1,025 marginal numbers on 251 pages, the draft guidance is very comprehensive. Although the core of the guidance is regulations on CFC taxation, other topics addressed include exit taxation, the change of residence to low-tax areas, the extended limited inheritance and gift tax liability, family foundations, and taxpayers’ duty to cooperate.

The draft guidance is proposed to apply to the versions of the respective provisions of the FTTA applicable from 1 July 2021, taking into account the application provisions of Section 21 FTTA.

Comments on the draft guidance are due 4 September 2023. Publication of a final version of the guidance is not expected before October 2023.

Read a July 2023 report [PDF 614 KB] prepared by the KPMG member firm in Germany


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