German Declaration Implementation Act: Federal government comments on proposals of the Federal Council

The exchange of blows between the federal government and the Federal Council (Bundesrat) has begun. Although the federal government, by presenting the German Declaration Implementation Act (Protokollumsetzungsgesetz – ProtokollUmsG), has initiated the implementation of some of the Federal Council’s proposals for the amendment of the German Fiscal Code so that it complies with the EU Customs Code, the federal government is somewhat critical of the additional points now being demanded by the Federal Council in its response of 8 May 2015 (see news of 13 May 2015). For example, the federal government is again rejecting the implementation of the Federal Council’s taxation simplification proposals. These proposals provide, amongst other things, for changes to the loss restriction clause in Section 15e of the German Income Tax Act (Einkommenssteuergesetz – EstG), the abolition of the tax advantages of carried interest and restrictions with respect to benefits in kind.

The federal government is also critical of the option proposed by the Federal Council of applying the de minimis threshold of EUR 5,000 with respect to the reversal of tax liability for deliveries of certain precious metals or non-precious metals. The federal government wants to abide by the compulsory application of this regulation, i.e. tax liability is not transferred for deliveries under EUR 5,000. The Federal Council’s repeated demand that money vouchers should also categorised as cash benefits, so that these no longer fall under the benefits in kind threshold of EUR 44 and are therefore tax-free, is also rejected by the federal government.

On the other hand, the federal government advocates the legally secure allocation of a supply of goods within chain transactions to the intracommunity supply of goods and wants to implement this. A working group is already meeting on this issue to draft solution proposals. The federal government also appears to support the Federal Council’s demand to subject 5% of dividends received via a controlled company to trade tax. According to a current judgement of the German Federal Fiscal Court (Bundesfinanzhof – BFH) handed down on 17.12.2014 (I R 39/14), such dividends can be fully exempt from trade tax.

It remains to be seen whether and how the Bundestag (lower house of the German Parliament) will now respond to the points presented by the federal government and the Federal Council. Final results will not be available until the end of September because the final consultations of the Bundestag and the resolutions of the Federal Parliament are not scheduled until after the parliamentary summer recess. It will also be interesting to see how the Federal Council will the react to the law, seeing that not all of its proposals have been implemented.