Canada: DTA negotiations with Germany

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The Finance Department of Canada has declared that negotiations to update its Double Tax Agreements (DTA) with Germany will be held in June 2017. The main objective of this release is to ensure that persons whose interests are affected have an opportunity to inform the Government of any particular issues of double taxation that might be resolved in a tax treaty. The Government is particularly interested in gathering knowledge of any difficulties encountered by Canadians under the German tax system so that these issues might be considered in negotiations. Persons are invited to give their comments regarding this negotiations and send it to the Finance Department.

Germany: Signs the Multilateral Convention to implement tax treaty related BEPS measures

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Finance Minister Schäuble signed the OECD Multilateral Instrument (MLI) on 7 June 2017 in Paris. The MLI instrument represents a vital step forward in the fight against base erosion and profit shifting (BEPS) and is a remarkable consensus agreed upon by OECD and G20 countries alike.

About 70 countries at all levels of development have signed this Multilateral Instrument (MLI) at the OECD Centre in the presence of Secretary-General OECD at the same time. A number of jurisdictions have also expressed their intention to sign the MLI as soon as possible and other jurisdictions are also actively working towards participation in the multilateral instrument.

Germany: Implements legislation that restricts the tax deductibility of related-party royalty payments

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The Federal Parliament and the Federal Council on 12 May 2017 and 2 June 2017 have agreed on the implementation of legislation which restricts the tax deductibility of the contributory payments under certain conditions. This royalty limitation rule is focused on situations where the royalty income is taxed as part of a special patent box regime that is not the “Nexus” approach to the Organization for Economic Cooperation and Development (OECD).

As soon as the German President signs the law, the rule applies to the license fees acquired after 31 December 2017.

Germany: Government approves signing of MLI to implement tax treaty related BEPS measures

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The German Federal Parliament on 21 December 2016, approved the signing of the Multilateral Instrument (MLI) to implement into bilateral tax treaties the tax treaty-related measures arising from the OECD / G20 BEPS Project to tackle base erosion and profit shifting. A signing ceremony is scheduled to be held on 7th June 2017 in Paris.

The BEPS recommendations combat tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. The multilateral instrument will enable countries to adjust their bilateral tax treaties to include BEPS treaty-related recommendations without having to renegotiate each bilateral treaty.

Germany: Issues new procedure for non-residents regarding reimbursement of the withholding tax

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Recently, the tax administration published an updated guidance on the tax refund procedure for non-residents to claim a 15% refund of withholding tax on portfolio dividends.

According to the new procedure, as from 1 January 2017, the income from dividends subject to a residual tax rate of 15% under an agreement. If pursuant to an agreement, the income from a free float dividends received by an applicant is less than 15%, and if this applicant falls within the scope of section 50j EStG (the Income Tax Code), the corresponding repayment requests need to be writing from 1 January 2017.

Germany: Draft amendments to transfer pricing documentation ordinance

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The Ministry of Finance on 23 February 2017 published draft amendments to the transfer pricing documentation ordinance. These show the changes introduced by the bill on the implementation of amendments to the EU Mutual Assistance Directive and other measures against base erosion and profit shifting (BEPS) including the introduction of country-by-country reporting. Other requirements include:

The draft bill also includes the following requirements:

  • Naming the person involved in decisions regarding intercompany transactions;
  • Presenting available information at the time the transfer price was determined; and
  • Providing tax auditors with access to the benchmarking database.

Germany: Ministry of Finance publishes guidance on application of OECD’s Common Reporting Standard

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The German Ministry of Finance on 3 March 2017, published official guidance (1 February 2017), on the application of the OECD’s Common Reporting Standard concerning the automatic exchange of information and application of the Germany-United States FATCA Model 1A Agreement.

The guidance provides financial institutions and their advisors with details of the reporting duties they need to fulfil in order to be compliant with the Common Reporting Standard and the FATCA agreement. Additionally, it explains the information clients are obliged to provide to financial institutions. The guidance replaces the previously issued guidance on the application of the FATCA agreement.