Additional taxation
The taxation of the income of a foreign subsidiary by the domestic shareholder is referred to as surcharge taxation (known as “controlled foreign corporation rules” or “CFC rules”) .
Its aim is to prevent persons with unlimited tax liability from transferring their foreign income to a company that is subject to tax law and has its registered office in a low-tax country and is not subject to tax in Germany, thereby gaining tax advantages. The income (interim income) of foreign companies (interim company) is added to the unrestricted taxpayer according to their participation (additional amount). The addition takes place as capital income in the context of a so-called distribution fiction.
In principle, a foreign subsidiary - provided it is a corporation - is seen as an independent taxable person. The subsidiary's income is subject to foreign tax law and is taxed abroad. Only the distributions of the subsidiary to the domestic shareholder are subject to domestic taxation.
These regulations allow abuse. For example, a resident taxpayer could set up a subsidiary in a low-tax country and deposit his bonds there. He would only have to pay (low) tax on the interest received abroad, as long as he does not pay it out, but invests it again.
If no corporation tax or only a comparatively low corporation tax is levied in the state of the foreign corporation, the income would be withdrawn from German taxation by shifting sources of income to intermediate companies.
In order to prevent abuse, the separation between shareholder and company is broken in certain cases. Then the passive income of the foreign subsidiary is added directly to the income of the domestic shareholder, regardless of the type of profit appropriation. The partner then has to pay tax on the income of the foreign subsidiary (e.g. the interest received) in Germany. The tax paid abroad can usually be offset, so that the result is the domestic tax level.
Such an addition removes the shielding effect of the foreign company from German taxation, since the foreign income is subject to national taxation.
Factual requirements
The following conditions must be met so that the foreign income can be recognized by the domestic taxpayer, i.e. the additional taxation is used:
1. It must be a foreign company: the income carrier must be a foreign company. This includes corporations, associations of persons and estates that have neither management nor their registered office in the Federal Republic of Germany and which are not exempt from corporation tax liability (foreign company). Accordingly, all natural persons and all forms of co-entrepreneurship are excluded from the addition taxation. If there are differences of opinion about the qualification of a company as a corporation or partnership, a decision is made based on the criteria of German company law by means of a type comparison.
2. It must be controlled by domestic shareholders: A domestic shareholder can be any natural or legal person with unlimited tax liability. If a partnership holds the shares in the foreign company, its shareholders are deemed to have a direct interest in the foreign company.
Control is given if the domestic shareholders own more than half of the shares or the voting rights in the foreign company.
3. The foreign company must generate income from passive income : Income that cannot be found in the catalog of active income is accordingly from passive income (so-called interim income). Each economic activity of the foreign company must be examined separately for the application of the catalog regulation.
The following income is considered active income:
- Income from agriculture and forestry
- Income from industrial activity
- Income from the operation of credit institutes and insurance companies, if these companies maintain a commercially established business, i.e. have sufficient personnel and material resources.
- Income from trading
- Income from services
- Rental and leasing income
- Income from raising and lending foreign capital
- Profit distributions from corporations
- Income of the foreign company from the sale of shares, liquidations and capital reductions
The passive income determined is added to the domestic shareholder in accordance with his addition rate (additional amount). The addition rate is calculated according to the direct participation of the individual domestic shareholder in the nominal capital of the foreign company or according to the voting rights. The resident taxpayer is treated as if a full distribution would be made immediately after the end of the financial year of the intermediate company. The additional amount leads to income from capital assets or to income from commercial operations or self-employed work , if the participation is held as business assets.
4. Passive income must be taxed at a low rate: There is low taxation if the income tax burden on the additional income to be included in the debit calculation is below 25%. However, taxation is also low if income taxes of at least 25% are legally owed but not actually levied. The tax actually determined is therefore decisive and not the tax claim of the foreign states that has arisen abstractly according to the law.
5. The foreign company must not be an EU / EEA company.
6. The exemption limit must be exceeded.
Facts related to additional taxation also affect holdings in foreign partnerships or permanent establishments. However, the legal consequence here is the change from the tax exemption to the tax credit method.
For Germany, additional taxation is regulated in the fourth part of the External Tax Act. There is also additional taxation in Denmark, Finland, Portugal, Great Britain, France, Italy, Sweden, the USA, New Zealand and Japan and some other countries. The structure of the additional taxation varies greatly from state to state. The technical term is CFC - Controlled Foreign Companies.
time
The additional taxation already takes effect in the year in which the foreign company generates the income. They are deemed to have accrued to the foreign company after the end of the relevant financial year.
European legal aspects
According to the case law of the European Court of Justice (ECJ), additional taxation violates the freedom of establishment; it is therefore only permissible for foreign companies based in the EU and the European Economic Area (EEA) if a foreign subsidiary in which a German shareholder has a stake cannot be regarded as a "branch" in the sense of European law. A “branch” is already given if such a company develops its own genuine economic activity in its country of domicile. For this reason, under European law, the application of the taxation of additional taxation for investments in European companies is only tolerated if this participation can be viewed as a purely artificial arrangement. What is meant by a purely artificial design has not yet been sufficiently clarified. In any case, it is not enough that the parent company could also have carried out the activities of the subsidiary itself; because that would essentially negate the freedom guaranteed by the EC Treaty to also establish subsidiary companies. The German legislator has taken the problem into account by declaring the addition taxation to be inapplicable if the shareholder can prove that he is involved in a company in the EU or in the EEA whose activities meet certain criteria.
In the Cadbury-Schweppes decision, the European Court of Justice declared the addition taxation lawful. She was with the freedom compatible. A prerequisite, however, is that there is also objectively an abuse to exploit different levels of taxation.
swell
- Gernot Brähler (2012): International Tax Law. Basics for studies and tax advisor examination. With the collaboration of Christoph Engelhard, Andreas Krenzin, StB. 7th edition Wiesbaden: Gabler Verlag I Springer Fachmedien Wiesbaden GmbH.
- Kay-Michael Wilke (2009): Textbook on International Tax Law. With the assistance of Jörg-Andreas Weber, lawyer. 9th edition Herne: Verlag Neue Wirtschafts-Briefe GmbH & Co. KG.
- Norbert Dautzenberg: Additional taxation .
- Michael Preißer, Michael Thau: Additional taxation according to AStG .
Individual evidence
- ↑ Eike Berend Post: Additional taxation in Europe. Diss. Osnabrück 2008. limited preview in the Google book search