China and Germany signed a New Tax Treaty
On 28 March 2014, China and Germany entered into a new Double Taxation Agreement (DTA). The New DTA is expected to be effective on or after 1 January 2015. The New DTA revises some tax allocation principles and capital gains provision, that will directly affect enterprises having cross border investments and transactions in Germany and China.
The key changes in the New DTA are as follow:
- Permanent Establishment (“PE”)
- Reduction of Withholding income tax (WHT”) rates
- Revamping of the capital gains provision
- Additional Anti-Treaty abuse provisions
- Activity clause / Switch-over clause
The New DTA would revise some tax allocation principles, such as PE, WHT and capital gains provision that will directly affect enterprises having cross border investments and transactions in Germany and China.
As the new anti-treaty abuse provisions clearly reflect the determination of both countries to enhance cooperation in tackling aggressive tax planning for treaty benefits, multi-national corporations should assess their current structures and arrangements to ensure the eligibility requirements are met to enjoy the treaty benefits.
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