Switch-over clause
Switch-over clause (German also Umschaltklausel ) is a special rule in the double taxation agreement (DTA), as a solution for qualification serves or allocation conflicts between Parties. We speak of a qualification conflict when there is a cross-border situation that affects two countries and a DTA has been signed between these countries. As a result of the different national legal systems, the agreement of the two contracting states is applied differently.
In international tax law, a distinction is made between positive and negative qualification conflicts.
more details
A positive qualification conflict arises, for example, in the following cases:
If a domestic partnership pays interest to its foreign shareholder, the foreign shareholder, from the German point of view, earns income from commercial operations in accordance with Section 49 (1) No. 2a i. V. m. Section 15 (1) No. 2 EStG. In Germany, interest is treated as corporate profits in accordance with Article 7, Paragraph 1 of the OECD-MA and is therefore taxable in Germany. From the point of view of the foreign state, this is interest according to Art. 11 Paragraph 1 OECD-MA, for which this foreign state has the right to tax. The fact that the same income is interpreted in different ways, namely on the one hand as corporate profits in Germany and on the other hand as interest abroad, ultimately leads to the income being taxed twice. In this case one would speak of double taxation at home and abroad.
A negative qualification conflict exists when each of the two contracting states grants the other state the “right to tax”. The income is not taxed in the source country due to double taxation agreements, while the avoidance norm applies in the country of residence. The application of the exemption method in the country of residence leads to double exemption of the income concerned according to the respective double taxation agreement. This creates so-called " white income ".
The following facts about this:
A BFH judgment of January 11, 2012, IR 27/11
The facts concern the wages of a pilot who is domiciled in Germany but who works on board an aircraft for an Irish airline and is not allowed to be taxed in Germany. The background to the judgment is a regulation in the DTA between Germany and Ireland. According to this, the right to tax the wages of aircraft crew members is always available to the contracting state in which the airline's management is located. Ireland does not make use of its right to tax, which leads to untaxed, ie “white” income for the staff concerned.
An attribution conflict exists if the income from the permanent establishment in one contracting state is allocated to the head office in another contracting state.
Since neither double taxation nor double exemption is wanted, the switch-over clauses are agreed. According to these clauses one tries to avoid remaining double taxation by offsetting the foreign tax. According to this, Germany as the country of residence can, under certain conditions, use the credit method instead of the exemption method in accordance with Section 50d (9) EStG. In this case, the income that has remained untaxed in the source country is taken into account in Germany.
Retroactive application of switch-over clause
A switch-over clause can only be applied to matters that were not yet concluded when the DBA came into force. In this case one speaks of a false retroactive effect. The application of a switch-over clause to the facts that were already concluded before the entry into force of the DBA is not permitted. This process is known as real reaction.
Example:
A company has had its headquarters in Germany since 2008 and also has a server abroad. This server operated in the source country is marked as a permanent establishment in the country of residence Germany and is then in accordance with Art. 7 OECD-MA i. V. m. Art. 23 A para. 1 OECD-MA tax-free in Germany. The right to tax the permanent establishment income is assigned to foreign countries. Since the foreign country does not see a permanent establishment according to its national law and consequently does not tax any income, in this case it leads to "white income". On January 1, 2011, a new DTA will be signed between the country of residence Germany and the source country, which contains a switch-over clause. This clause cannot be applied to the income in 2008, 2009 and 2010 as it would be a real retrospective effect. With regard to the income from January 1, 2011, there is only a spurious retroactive effect, so the switch-over clause can be used on the income from 2011 onwards.
literature
- Thomas Rupp, Jörg-Thomas Knies, Johann-Paul Ott, Tanja Faust: International Tax Law. 3rd edition, Schäffer-Poeschel Verlag Stuttgart, (2014), p. 215 ff.
- Kay-Michael Wilke: Textbook International Tax Law. 10th edition, nwb-Verlag, (2010), p. 105.
- Gernot Brähler: International Tax Law. 8th edition, Springer Gabler (2011), p. 354 f.
Web links
Individual evidence
- ↑ Judgment of January 11, 2012, IR 27/11 , on BFHUrteile.de
