Patrick Bubeck and Dr Tobias Stiegler take a closer look at the Article in the journal NWB Steuer- und Wirtschaftsrecht The authors deal with the comprehensive scope of application of construction withholding tax and provide an overview of current developments in the regulation and the associated challenges for practitioners. Based on experience from tax audits and transactions, they see the construction withholding tax as a future focus of the tax authorities and thus as a tax and audit risk for all property-oriented companies such as Property developer, portfolio holder, landlord etc. But also for those companies that Plant engineeringfor photovoltaic systems, for example.

In simple terms, a client/beneficiary for whom construction work is carried out in Germany must have a Tax deduction of 15% of the consideration (construction withholding tax) and transfer it to the tax office if none of the exceptions listed in Section 48 (2) EStG - exemption certificate or not exceeding certain de minimis limits - apply.

The regulations on construction withholding tax have been in the Income Tax Act for 20 years, but receive relatively little attention in day-to-day practice. This could change following the decision of the Federal Fiscal Court in its judgement of 7 November 2019 (see BVerfG), as this decision has changed the Concept of a building interpreted very broadly and thus the Area of application the regulation as a whole. Domestic clients/service recipients should pay particular attention to construction services provided by foreign contractors in order to completely avoid any tax risks or tax liability issues in advance.

According to the BFH, the concept of a structure is not limited to a building or other immovable assets. Rather, the concept of a building can also include operating equipment and fictitious components, not least also Technical installations can, in principle, be buildings within the meaning of the regulations on construction withholding tax.

Yours TAXGATE Team is always available to help you analyse and set up a lean, practical tax compliance system.

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