Germany: Final guidance on CFC rules, other tax developments
Final guidance on application of the Foreign Transactions Tax Act (FTTA)
The Federal Ministry of Finance (BMF) on 22 December 2023 published final guidance on application of the Foreign Transactions Tax Act (FTTA), in particular regarding the taxation of controlled foreign corporations (CFCs).
Only a few significant changes were made in the final guidance compared to the draft guidance published by the BMF in July 2023.
The 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 CFC taxation:
- Change of the control criterion and introduction of a shareholder-related approach
- Abolition of the concept of downstream intermediary companies (transferable CFC taxation)
- Revision of the catalogue of active income
- Revision and extension of the motive test for certain passive income to third countries
In the Minimum Tax Directive Implementation Act, the low tax threshold (Section 8 (5) FTTA) was reduced from the current 25% to 15% as of 2024, which should significantly reduce the factual scope of application of CFC taxation. However, the final BMF guidance does not yet refer to the Minimum Tax Directive Implementation Act and continues to focus on a low tax threshold of 25%.
Read a January 2024 report [PDF 387 KB] prepared by the KPMG member firm in Germany
Other recent tax developments in Germany include:
- Financial integration and tax group in the case of conversion during the year (BFH, decisions I R 45/20, I R 40/20, I R 36/20 and I R 21/20)
- Financial integration in the case of a tax group with qualified majority requirements (BFH, decision I R 50/20)
- Book value transfer of assets between sister partnerships (BVerfG, decision 2 BvL 8/13)
- Inbound-dividend taxation in permanent establishment cases (Lower Tax Court of Bremen, decision 1 K 111/18 (6))