The German Ministry of Finance (MoF)  released the final decree on the application of Germany’s anti-hybrid rules on 5 December 2024, providing clarifications over the draft version published in 2023.

The decree addresses how foreign controlled foreign corporation (CFC) taxation, US Global Intangible Low-Taxed Income (GILTI), and Pillar Two rules impact dual or no inclusion (D/NI) outcomes.

The final version clarifies that income taxed under a foreign CFC regime compliant with the EU anti-tax avoidance directive (ATAD) is considered “included income,” preventing D/NI outcomes.

However, foreign tax regimes that “blend” income, like the US GILTI or Pillar Two rules, are not considered to produce “included income.”

Additionally, the decree introduces relief for certain disregarded payments. Income taxed in Germany but not in the foreign jurisdiction due to hybrid mismatches may still constitute dual inclusion income, even if it is not taxed abroad, provided it leads to a No-Deduction/Inclusion outcome. This provides a fairer interpretation than the strict wording of the law.

The decree also revises the treatment of double deductions (DD) by clarifying that no DD occurs if expenses are deductible both in Germany and under a foreign CFC regime or blended tax systems, like US GILTI or Pillar Two. This contrasts with the draft decree, which had suggested DD could arise under such regimes.

Other provisions include an imported hybrid mismatch rule that applies even without an economic connection between expenses, affecting payments between non-German entities. The German anti-hybrid rules also apply when there is non-taxation under CFC rules due to hybrid mismatches, even if no other jurisdiction taxes the income.

The decree further imposes documentation requirements, urging taxpayers to provide the German tax authorities with sufficient evidence of foreign tax treatments. Non-compliance could lead to the assumption that the anti-hybrid rules apply, resulting in non-deductibility of expenses.