| |||
August 7, 2018 German Federal Ministry of Finance amends draft Annual Tax Act 2018 On 1 August 2018, the German Ministry of Finance (MOF) published an amended version of the draft Annual Tax Act 2018 and changed its name to "Tax Act for the Prevention of VAT Revenue Losses from Trading with Goods over the Internet and Amendment of Further Tax Provisions." Further parliamentary discussions of the draft are scheduled in the third and fourth quarter of 2018. The initial draft of the law was published on 25 June 2018.1 The amended draft sets forth the following changes: Taxation of capital gains realized by nonresident taxpayers upon the disposition of shares in "land rich" corporations According to the amended draft, capital gains taxation on the disposition of shares in any resident or nonresident German land rich company should only occur if the taxpayer owned at least 1% at any point in time during the five years prior to the disposition, i.e., no capital gains taxation should occur, where the taxpayer did not own at least 1% at any point in time during the five years prior to the disposition. Furthermore, a credit for any foreign income taxes paid on such capital gains, up to the amount of German tax payable on the same capital gain, should be granted to avoid double taxation. Amendment of the change in ownership limitation rules The amended draft includes no modifications to the proposed law for Sec. 8c (1) S. 1 Corporate Income Tax Act (CITA). According to the proposed law (in both the initial and amended draft), Sec. 8c (1) S. 1 CITA should not apply on any ownership change of 50% or less occurring prior to 31 December 2015. In addition to the above, the amended draft includes a new provision (Sec. 34 (6) CITA) which reinstates the "restructuring exception" provision (Sec. 8c (1a) CITA). Generally, German loss attributes (loss carryforwards, current losses and interest carryforwards) are forfeited upon a harmful ownership change. According to the "restructuring exception," loss attributes of a company are not forfeited if the company had a change in ownership within the course of a restructuring driven by financial hardships. On 26 January 2011, the European Commission ruled that the "restructuring exception" qualifies as unlawful State aid. As a consequence of the European Commission's decision, the German legislator suspended the application of the "restructuring exception" retroactively. One 28 June 2018, the European Court of Justice (ECJ) ruled, against the European Commission, that the "restructuring exception" does not constitute unlawful State aid. In order to implement this ECJ ruling, the amended draft of the law reinstates the "restructuring exception" retroactively to 2008. Value Added Tax (VAT) Act: Secondary VAT liability for operators of e-commerce platforms The proposed rule for the secondary VAT liability of an e-commerce platform operator for unpaid VAT of a seller has been slightly adjusted in the amended draft of the law. According to the amended draft, the operator will not be liable for VAT unpaid by a seller if: (i) the operator has obtained the seller's "certificate of registration" and (ii) there is no reasonable basis for the operator to assume that the seller is not complying with its VAT obligations. Furthermore, whereas according to the initial draft of the law, the tax office would deny the issuance of a "certificate of registration" in particular to sellers/suppliers who were non-compliant or are expected to be non-compliant with their VAT filing and payment obligations, the amended draft doesn't include this specification anymore. Hence, it became even more unspecific in which cases the tax authorities will likely deny the issuance of a "certificate of registration." Once enacted, the proposed rule should be applicable for all transactions carried out by sellers/suppliers resident in non-European Union (EU) and non-European Economic Area (EEA) countries as of 1 March 2019 and for all transactions by sellers/suppliers resident in EU or EEA countries as of 1 October 2019. Incentives for electric and hybrid company cars The private use of a company car is generally subject to income tax (benefit in-kind). The respective benefit for the taxpayer can be valued at a flat monthly rate of 1% of the vehicle's gross list price (plus 0.03% per kilometer for the distance between the home and the place of work) if the company car is used more than 50% for business purposes. In order to further support their use, the German legislator introduced a special provision for electric and hybrid vehicles as of 2013 according to which the gross list price is decreased based on the capacity of the vehicle's battery by €500 per kWh for purposes of this calculation. The maximum reduction of the gross list price is limited to €10,000 according to the rule. Furthermore, the amount of the reduction per kWh (€500 in 2013) is decreased by €50 for each year starting from 2013, e.g., the reduction for an electric or hybrid company car acquired in 2014 amounts to €450 per kWh and nil as of 2023. The amended draft of the law includes a new proposal according to which the gross list price is reduced by 50% for electric or hybrid company cars acquired in 2019 through 2021 instead. For vehicles acquired before 2019 or after 2021, the original rule remains applicable. Other changes and legislative procedure In addition, the aforementioned law includes a number of smaller changes and "housekeeping" amendments to various items of the Income Tax Act, the Investment Tax Act, and the VAT Act. It is expected that the legislative hearings and final enactment of the law will be completed in 2018. In the final Act, any of the above described proposals may be included in a substantially modified form, so interested taxpayers should monitor the further developments of the legislative proceedings. ——————————————— 1 See EY Global Tax Alert, German Federal Ministry of Finance publishes draft Annual Tax Act 2018, dated 16 July 2018. ——————————————— For additional information with respect to this Alert, please contact the following: Ernst & Young GmbH, Germany
Ernst & Young LLP, German Tax Desk, New York
——————————————— PDF version of this Tax Alert
| |||
|
