Isolating approach (tax law)
The principle of the isolated approach is applied to the limited tax liability. All natural persons who are neither domiciled nor habitually resident in Germany, but who receive domestic income, are subject to limited tax liability. Legal persons are subject to limited tax liability with their domestic income if they have neither their registered office nor management in Germany ( Section 2 KStG).
Section 49 of the Income Tax Act regulates the limited tax liability in Germany. Paragraph 1 of this paragraph lists all (ie it is an exhaustive catalog) income for which the taxpayer (non-resident taxpayer) is deemed to be subject to limited taxation in Germany.
Section 49 (2) of the Income Tax Act regulates the principle of the isolating approach, which is applied to persons with limited tax liability: "Taxation features given abroad are disregarded if, when they are taken into account, domestic income within the meaning of paragraph 1 could not be assumed".
In order to understand the principle of the isolating approach, one has to briefly explain the principle of taxation of domestic businesses. According to Section 15 of the Income Tax Act, the principle that income generated in a domestic commercial enterprise (regardless of whether it is dividend income or income from renting and leasing) always counts as commercial income . If the business or permanent establishment is abroad and it receives dividend income from a domestic corporation, which is to be allocated to the business, the dividends should actually be classified as income from business in accordance with Section 15 of the Income Tax Act in conjunction with Section 20 (8) of the Income Tax Act. According to the principle of the isolating approach, however, there is only income from capital assets (and not income from commercial operations). The tax characteristics located abroad (here: commercial income) are not taken into account; the allocation of income is generally assessed according to the domestic situation (here: income from capital assets).
Another example: A foreign sole proprietorship sells a 10% stake in the domestic A-GmbH. The foreign sole proprietorship holds the stake in its foreign business assets.
Since the participation is part of the business assets, there is initially no domestic income within the meaning of Section 49 (1) no. 2 letter e double letter. aa EStG. According to the principle of the isolating approach, the affiliation to foreign business assets is ignored and only the domestic facts are considered in isolation. Thus, there is domestic income according to § 49 Paragraph 1 No. 2 Letter e double letter. aa before.
Objective: the isolating approach pursues the objective of equal treatment of non-resident taxpayers regardless of their foreign circumstances and foreign assets.
The isolating approach is mainly used when foreign traders earn domestic income in Germany. The connecting factors for the limited tax liability have been continuously expanded by the legislator, so that the isolating approach only has to be used in special cases
literature
- Ekkerhard Bächle, Thomas Rupp, Johann-Paul Ott, Jörg Knies: International tax law. 2nd Edition. Schäffer-Poeschel Verlag, Stuttgart 2008, ISBN 978-3-7910-2484-4 .
- Gernot Brähler: International Tax Law. 7th edition. Springer Gabler, 2011, ISBN 978-3-8349-3514-4 .
Web links
Individual evidence
- ^ Gernot Brähler: International Tax Law. 2011, pp. 13-14.
- ^ Gernot Brähler: International Tax Law. 2011, p. 14.
- ↑ See Gernot Brähler: International Tax Law. 2011, pp. 14-16.
- ↑ Gernot Brähler, International Tax Law. 2011, p. 14. Quoted from BFH v. January 20, 1959, I-112/57, BStBl. III 1959, p. 133.
- ^ Gerrit Frotscher: International tax law. 2020, p. 76
