December 17, 2019
German Government postpones adoption of draft ATAD implementation law
On 10 December 2019, the first draft of the German “Law implementing the EU Anti-Tax Avoidance-Directive” (“Draft Law”; Council Directives 2016/1164 of 12 July 2016, and 2017/952 of 29 May 2017, “ATAD”) was released for public consultation. The further legislative process was expected to take place very quickly; Government (Bundeskabinett) approval of the bill was already expected on 18 December.
The 10 December Draft Law includes significant changes to the German taxation of cross-border transactions. It included not only an implementation of the anti-hybrid rules of the ATAD Directive, but also, inter alia, a comprehensive reform of German transfer pricing rules, in particular those relating to cross-border intercompany financing, and a reform of the German controlled foreign corporation (CFC) rules, which both to a great extent tightened significantly the currently applicable rules in these areas. For further details, see EY Global Tax Alert, Germany publishes draft ATAD implementation law, dated 12 December 2019.
There is currently no official information available concerning the reasons for the postponement. A major point of contention seems to be the absence of a proposal to lower the current high tax kickout exception rate (25%) on CFC income of a German taxpayer. Since the ATAD Directive mandates implementation of the standards set by the directive into German law as of 31 December 2019, it is expected that the German Ministry of Finance will push to restart the legislative proceedings with the introduction of a revised draft as soon as possible in January 2020. A revised draft could become available as early as mid-January 2020.
We will continue to report on the progress of this legislative development.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), German Tax Desk, New York
Ernst & Young LLP (United States), EMEIA Transfer Pricing Desk, New York
Ernst & Young GmbH, Munich
Ernst & Young GmbH, Freiburg
Ernst & Young GmbH, Berlin
Ernst & Young GmbH, Duesseldorf
Ernst & Young GmbH, Stuttgart