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Tax Performance Analysis

The fiscal problems encountered by enterprises at their foreign engagements may vary significantly. However, we have learned in our practical consulting experience that typical questions are recurring as to companies in particular lines of business. Here are a few examples:

  • International business activities of banks and financial institutions: Business activities abroad by foreign subsidiary corporations or permanent banking establishment? Fiscal aspects as to granting foreign loans.
  • International business activities of insurance carriers: Fiscal treatment of actuarial balance sheet items. Valuation of assets. Profit apportionment as to self-insurance (Captives).
  • Fiscal problems of shipping line businesses: Wage tax deductions for the sailing personnel. Aspects of taxation of tonnage. Special rules as to the shipping line business in double-tax agreements (also applying to aviation businesses).
  • Taxation of internationally operating IT and software businesses: Choice of location of development. Possibilities as to how to design distribution: Direct distribution versus distribution by subsidiary versus distribution by permanent business establishment.
  • Fiscal aspects of taxation of venture capital funds (entrepreneurial investments into non-stock-listed start-up enterprises, e.g. by way of equity capital or in the form of silent partnerships): Commercial tax obligation of a venture capital fund? Applicability of the Investmentsteuergesetz [Investment Tax Code] (InvStG; advantages and disadvantages)? Foreign Transaction Tax law consequences as to participating in a foreign venture capital fund.

Based upon our many years of counseling experience and our specialization in international tax law, we are in a position to find the ideal solution for your company.

A special role within every transnational group of companies is assigned to its holding company. It is the parent company of all operative subsidiaries which are possibly spread across several countries. In the holding company all revenues out of these companies converge in the form of dividend payments.

The right choice of location of the holding company essentially influences the overall tax ratio that, in the end, applies to any and all profits arising out of economic activities. The choice of the location that is suitable for you is influenced by a number of factors; for example, the web of double-tax agreements has to be determined between the potential head-office country of the holding company and those countries in which the operating companies are located.

Furthermore, it is crucial to know whether the potential holding company country keeps special fiscal regulations at hand for profits arising out of the administration of corporate shares. Whether and, if any, how will dividends arising out of principal holdings be taxed? How are profits arising out of the disposition of such holdings treated? Is there a possibility to offset such profits with potential losses arising out of other activities? Is it possible to carry forward fiscal losses and offset them with profits in following years? Is a withholding tax being levied if the gains of the holding company are distributed, in the form of dividends, to the shareholders (mostly individuals) of the holding company?

We will support you finding the ideal location of a holding company that is best suited for your needs.

If an individual moves the place of residence from abroad to the U.A.E. or to another GCC country, it means the end of the unlimited domestic income-tax obligation. However, in order to avoid an excessive exodus of tax substrate, the tax-law legislator has created an arsenal of measures to compensate the loss of taxes associated with that. For the example, the German Foreign Transaction Tax Code provides for a so-called “extended limited tax obligation” for the time after the move; this tax obligation expands the group of taxable incomes in Germany earned by “tax foreigners” versus the “normal” limited tax obligation.

The law also provides for a migration taxation that fictionalizes, at the time of the move, a disposition of shares in corporations starting with an ownership interest of 1%, which consequently leads to the tax triggering disclosure of the undisclosed reserves resting in these shares, despite the fact that these shares are not being disposed of. This can be most unpleasant for the individual moving away as potentially a large tax due arises without an actual flow of income having occurred. In order to circumvent such a precarious situation we will develop along with you creative solutions that, despite your relocation abroad, avoid triggering the migration tax obligation.

If an individual moves the place of residence from Germany to a place abroad, it means the end of the unlimited domestic income-tax obligation. However, in order to avoid an excessive exodus of tax substrate, the tax-law legislator has created an arsenal of measures to compensate the loss of taxes associated with that. The Außensteuergesetz (AStG; Foreign Transaction Tax Code),e.g., provides for a so-called “extended limited tax obligation” for the time after the move; this tax obligation expands the group of taxable incomes in Germany earned by “tax foreigners” versus the “normal” limited tax obligation.

The AStG also provides for a migration taxation that fictionalizes, at the time of the move, a disposition of shares in corporations starting with an ownership interest of 1%, which consequently leads to the tax triggering disclosure of the undisclosed reserves resting in these shares, despite the fact that these shares are not being disposed of. This can be most unpleasant for the individual moving away as potentially a large tax due arises without an actual flow of income having occurred. In order to circumvent such a precarious situation we will develop along with you creative solutions that, despite your relocation abroad, avoid triggering the migration tax obligation.

Your Expert Contact

Dr. Thomas Wülfing
Founder and President
thomas.wuelfing@germela.com
+49 40 284 84 04 00
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