Key Points from the Draft of the 2010 Tax Act - Mazars - Germany

The most important changes planned for income tax, international tax law and VAT

Income tax

Tax neutrality for exchange of shares

Until now, German Income Tax Law exclusively regulated for shareholders of foreign corporations that an exchange of shares in the course of capital measures generally has to be treated with tax neutrality. This exemption is now being expanded to include shareholders of domestic companies. The regulation applies in cases where tax neutrality cannot be achieved through special regulations such as the qualified exchange of shares in accordance with German Reorganisation Tax Law (Umwandlungssteuerrecht).

Sale of objects of daily use is not taxable

Sec. 23 EStG (German Income Tax Law) shall be simplified to the effect that the sale of objects of daily use, even within the speculative period, would no longer be a taxable transaction.

International tax law

Relocation of electronic accounting

In contrast to the current provisions, relocating the electronic accounting to other countries - not only EU/EWR countries - shall now be possible if the tax liable party has complied with the filing requirements in the past, German taxation is not hindered and access to data in accordance with Sec. 147 (6) General Tax Act (AO) is still possible. It is no longer necessary to obtain a data access permission from the host country.

Expansion of CFC-Legislation (Hinzurechnungsbesteuerung)

The assessment of whether a low tax rate in terms of the Foreign Tax Act (AStG) applies shall no longer only be limited to the taxation of the respective foreign company. Additionally, tax credit and reimbursement claims granted by the host country to shareholders have to be included.

Limitation to the switch-over clause for services

Until now, the so-called “switch-over clause” in Sec. 20 (2) AStG provided for a change from the application of the exemption method to the credit method for branch revenues, if those revenues would be qualified as intermediate revenues in the sense of the AStG had they been generated by a subsidiary. This shall no longer apply to foreign service establishments..

VAT

Amendment to the input VAT deduction for mixed use properties

The possibility to claim for a full input VAT deduction for properties partially used for private purposes (so-called “Seeling Scheme”) has been abolished. Only the part of the property used for commercial purposes will be eligible for input VAT deduction.

Broadening of Sec. 13b UStG (Reverse-Charge-System)

The Reverse-Change-System shall also apply to the supply of industrial scrap as well as commercial cleaning services.