Protocol Implementation Act: Federal Council Demands Further Amendments

The welcome for the current judgement of the Federal Tax Court of 17.12.2014 (I R 39/14) on complete exemption from trade tax on dividends received by a parent company from a controlled company, may be short-lived. According to the Federal Council, a legislative amendment according to which such dividends would be subject generally to 5 % of the trade tax should be introduced. This is demanded by the Federal Council in its statement on the present legislative process on the Protocol Implementation Act (BR-Drs. 121/15).

The Federal Council in its statement welcomes in particular the planned restrictions on contributions to corporations and partnerships. A tax neutral transfer at book value would then only be possible if the consideration granted in addition to the corporate rights does not exceed 25 % of the book value of the contributed assets or EUR 300,000. The new provision should apply already to all contribution agreements concluded after 31.12.2014.

In addition, the Federal Council also urges the Federal Government to implement the recommendation of the OECD in the course of the BEPS project as quickly as possible into national law. The Federation-State Working Group on this issue has met only once and even then without achieving any results. The Federal Council expects the working group to submit shortly an agreed legislative proposal. On this problem, the Federal Council already made a proposal last year. That provided for the introduction of a principle of correspondence with regard to the reduction of business expenses to avoid “white income” and “double dip structures” in hybrid financing.

The Federal Council also demands changes to VAT. Above all, in the case of series of transactions a legislative clarification of the legally secure attribution of movements of goods in the series transaction should be created having regard to the new judgements of the Federal Tax Court (judgement of 25.02.2015, XI R 15/14 and XI R 30/13). That plays a decisive role in particular in the case of cross-border trading because only in the case of a moved delivery can a tax exemption be considered as an inter-community delivery or export. A practicable solution for the mass of cases arising in economic life should be achieved. In addition, the provisioned minimums arrangement of EUR 5,000.00 with regard to the supply of certain precious metals or non-precious metals should be converted into an election. So far, the provision necessarily requires waiver of the reversal of tax liability.

With regard to the improvements of the provision in Section 8c Corporation Tax on the extinction of losses with regard to the expansion of the application of the group exemption clause, the Federal Council takes no expressed position so that these amendments are regarded as being approved by the Federal Council. The same applies for the intensification of Real Estate Transfer Tax Act, the changes in relation to valuation and the improvement of the investment deduction amount in Section 7g Income Tax Act.

In addition, the Federal Council also demands that its further tax simplification proposals be implemented in this legislative procedure. For companies, the planned amendments to the provision restricting losses in Section 15a Income Tax Act and the restrictions on benefits in kind are particularly interesting.

Whether and to what extent the Federal Government or the Federal Parliament take up these points in the legislative procedure remains to be seen.