Such foreign capital pooling vehicles are typically scrutinised intensively as part of tax audits or by the tax authorities as part of the assessment procedure. It is due to the different perspectives on the respective, possibly complex - in any case cross-border - (overall) situation that taxpayers and the tax authorities can come to completely different conclusions regarding the taxation of the foreign investment vehicle.
In the light of current experience from tax audits, Dr Tobias Stiegler has analysed these different taxation concepts on the basis of a typical case (cf. Stiegler in IStR 2020, p. 1). Depending on the facts of the case or the interpretation of these facts, the following taxation options can be considered, which lead to completely different tax effects for the taxpayer:
- Full tax recognition of the foreign corporation
- Recognition of the tax autonomy of the foreign corporation with immediate taxation of capital income by means of fictitious distribution (so-called add-back taxation)
- Recognition of the tax autonomy of the foreign corporation with qualification of the tax residency of the corporation in Germany (unlimited tax liability of the corporation in Germany)
- Negation of the foreign corporation for tax purposes and direct attribution of income to the taxpayer
In such cases, a very in-depth and detailed determination of the facts is required. In addition to full disclosure of the facts, it may also be necessary to present all possible taxation scenarios to the tax office in advance. Depending on the federal state in which the taxpayer is resident, only such a procedure can protect against criminal tax offences.
When establishing foreign investment vehicles, further changes to the framework conditions must be included in the planning from 2020. This mainly concerns the changes within the framework of the ATAD Directive (see draft bill on the AStG of 12 December 2019) and, if applicable, the reporting obligations under DAC 6.
Your TAXGATE team specialises in the implementation of cross-border investment structures and supports you in tax-efficient structuring and the fulfilment of declaration and reporting obligations.
Dr Tobias Stiegler is a tax consultant at TAXGATE, a law firm specialising in transactions, investments and tax compliance
