Germany: New tax law makes it harder for foreign companies to profit from treaty and EC Directive benefits

Ingmar Doerr (ingmar.doerr@lovells.com) and Dr Daniel Fehling, LL.M. (daniel.fehling@lovells.com), lawyers, Lovells’ International Tax Practice, Munich. This article has been reprinted from Practical Tax Strategies.

Germany tightens anti-avoidance rules for withholding tax exemption

The Annual Tax Act (ATA) 2007 contains various changes in German tax law. Inter alia, it restricts foreign companies’ entitlement to benefit from withholding tax exemptions granted under Double Taxation Treaties, the EC Parent-Subsidiary Directive and the EC Interest & Royalty Directive (in s50d(3) of the German Income Tax Act (ITA)). This part of the ATA 2007 took effect on 1 January 2007. Most recently, on 2 April 2007, the Federal Ministry of Finance issued a decree interpreting this new anti-avoidance provision.