On 30 November 2023, the German Ministry of Finance (MoF) issued draft guidance on anti-tax avoidance measures targeting non-cooperative jurisdictions. This follows the 2021 Tax Haven Defense Act, responding to EU guidelines against harmful tax practices. The defensive measures outlined in the Tax Haven Defense Act include the following:

  • Tighter controlled foreign company rules: German taxpayers who have a direct or indirect stake in a company residing in a noncooperative jurisdiction are subject to substantially strengthened controlled foreign company rules.
  • withholding tax: Payments to a recipient residing in a noncooperative jurisdiction are not eligible for reduced or 0% withholding tax rates under an applicable tax treaty or unilateral relief. In such cases, the final withholding tax rate is determined by German regulations.
  • No exemption for dividends: German subsidiaries in non-cooperative jurisdictions won’t benefit from tax exemptions.
  • Disallowing tax deductions: For tax purposes in Germany, disbursements to residents of non-cooperative jurisdictions are not considered deductible expenses.

The EU list currently identifies 16 non-cooperative jurisdictions, including Russia and Panama. These are likely to be added to the German list in mid-December. This draft guidance emphasizes Germany’s commitment to combating tax avoidance and protecting its tax base. The public can comment on the draft until 9 January 2024.