BEPS measures and additional relief from change-in-ownership rules approved
Global Tax Update:January 2017/Germany
On December 16, 2016, the upper house of the German parliament approved two tax bills: one bill introduces measures relating to the OECD base erosion and profit shifting (BEPS) initiative, while the other affects the “change-in-ownership” rules. Both tax bills must be signed by the president and published in the federal gazette before they will enter into force. (Global Tax Update:January 2017/Germany)
The first tax bill includes measures based on the recommendations in the BEPS final reports and the amendments to the EU administrative cooperation directive to introduce country-by-country (CbC) reporting (for a more detailed overview of all measures see GTLN dated June 9, 2016). The CbC reporting rules will apply for fiscal years beginning after December 31, 2015 (except for the “secondary mechanism,” which will apply only for fiscal years beginning after December 31, 2016). An obligation to prepare a master file for transfer pricing documentation purposes also is introduced.
The final version of the law also includes a previously proposed “antidouble dip” rule for partnership structures (see GTLN dated September 23, 2016). Under German tax law, interest expense incurred at the level of a partner of a partnership that is linked to the partnership business (e.g. interest expense related to the acquisition of the partnership interest) is treated as a “special business expense” and is deductible for tax purposes at the level of the partnership. If the partner is a nonresident, the partner becomes subject to limited German tax liability on its income from the partnership (a partnership is transparent for German corporate income tax purposes). The interest expense that qualifies as a special business expense, therefore, is deductible for German tax purposes, but also may be simultaneously deductible for foreign tax purposes at the level of the partner. The anti-double dip rule generally disallows a deduction for German tax purposes in such cases.