Corruption prevention is being harmonised across Europe: criminal law and sanctions provisions must be implemented by 1 June 2028, whilst regulations on risk analyses and prevention strategies must be in place by 2029. Together with the EU Anti-Money Laundering Regulation (Regulation (EU) 2024/1624) and the AMLA, this strengthens the integrated EU framework against financial crime. The common thread: risk-based prevention and significantly greater corporate responsibility.

WHAT IS CHANGING IN PRACTICE

There are three key points compliance officers should be aware of:

1. More criminal offences. Articles 3 to 11 broaden the scope of corruption offences across the EU. The use and concealment of corrupt advantages are also explicitly covered (Articles 9 and 10).
2. Stricter corporate liability. Previously, a company was primarily liable if a senior manager had acted personally. In future, it will suffic that a subordinate bribes on behalf of the company and that senior management has enabled this through inadequate supervision (Article 13). Organisational failure is thus treated on a par with individual misconduct.
3. Severe sanctions – with a way out. Companies face fines of between 3 and 5 per cent of their global annual turnover, or between 24 and 40 million euros, as well as bans on conducting business, dissolution or exclusion from public procurement procedures (Art. 14). The crucial lever for copanies: an effective compliance programme acts as a mitigating factor (Art. 16) – ‘effective’ is the key word here; a mere paper exercise is not sufficient.

WHY THE FINANCIAL SECTOR IS PARTICULARLY AFFECTED

Hardly any other sector is as exposed as the financial sector: close ties to supervisory authorities and central banks, a multitude of distribution partners, intermediaries and other third parties, and a business that is, by its very nature, cross-border. Each of these interfaces is a potential point of entry.

The real problem often lies in the organisation. In many places, corruption prevention still operates as a separate silo alongside money laundering, fraud and sanctions. This separation does not reflect reality. White-collar crime does not think in terms of areas of responsibility: one and the same set of facts – a concealed payment, a front man, a convoluted corporate structure – can simultaneously point to corruption, money laundering, fraud and breaches of sanctions.

THE SOLUTION IS CLOSER THAN MANY REALISE

The good news is that new processes are not necessarily required. Banks usually already have the key tools in place – from risk analyses and governance to whistleblowing schemes, internal investigations, transaction monitoring and due diligence. However, these are often not yet specifically geared towards corruption risks.

This is precisely where the practical challenge lies: corruption risks are often assessed only qualitatively; third parties such as intermediaries or advisers are scrutinised less rigorously; and warning signs such as conflicts of interest or conspicuous remuneration models are too often kept separate from existing anti-financial crime data.

Closing these gaps strengthens prevention whilst simultaneously reducing complexity and duplication of effort. The implementation deadline therefore represents a strategic window of opportunity – for all those who seize it now.

Would you like to align your anti-financial crime framework with the new requirements? Please feel free to contact us – we can support you in analysing existing structures and the integrated further development of your compliance systems.

Martin Seevers
Prof. Dr Christoph Wronka

Facts of the case

The plaintiff was a limited liability company whose shares were held entirely by an individual person. This person also held a majority stake in another GmbH. In this respect, both companies were sister companies. The plaintiff an interest-bearing loan to its sister GmbH. Due to the economic situation, a subordination agreement was concluded.  Subsequently, the claim for interest payment against the borrower was written down by the plaintiff. 

The Federal Fiscal Court had to decide whether this depreciation is to be added back to the off-balance sheet pursuant to section 8b (3) sentence 4 et seq. of the Corporate Income Tax Act. According to this standard, a reduction in profits in connection with a loan claim is not accepted for tax purposes if the shareholder (or an affiliated person) holds at least 25% of the borrower's shares. This was intended to prevent so-called capital-replacing loans instead of a capital injection. 

Decision

The Federal Fiscal Court first decided that an interest claim is not a loan within the meaning of this provision and is not economically comparable to the granting of a loan. A loan as well as an economically comparable legal relationship requires a financing purpose. This may be the case in the case of a conversion into a loan receivable by novation. A loan relationship can also be assumed if a claim is left standing for an unusually long period of time. However, neither was the case here.

In the opinion of the Federal Fiscal Court, such situations, in which the claim exists between two sister companies, both of which are held by the same individual person, are not covered by section 8b (3) sentence 4 et seq. of the Corporate Income Tax Act. It is true that, pursuant to section 8b (3) sentence 5 of the Corporate Income Tax Act, the denial of deduction is also to be applied to related parties. However, the wording of the law is based on the fact that it must be a person "close to the shareholder". The Federal Fiscal Court ruled that this must be the shareholder within the meaning of section 8b (3) sentence 4 of the Corporate Income Tax Act. However, this can only be a corporation. The Federal Fiscal Court also sees this result as being covered by the meaning and purpose of the provision. The provision was intended to prevent circumvention arrangements in which a capital injection through so-called equity-replacing loans is avoided. 

Practical consequences

The ruling shows how financing within a group of companies can be structured in order not to trigger an unnecessary tax burden even in the event of poor liquidity or payment defaults. Especially in times of unforeseeable economic development, attention should be paid to this. 

The ruling also has implications for transaction financing, especially in SMEs. Multi-stage acquisition structures are often chosen in order to be able to claim the corporate income tax privilege for any distributions or capital gains. According to the new Federal Fiscal Court case law, such structures should be reviewed to see whether companies that foreseeably need to be supported with shareholder loans are better financed by a sister company instead of via the parent company. Before an acquisition, the most tax-efficient acquisition structure should be assessed on a case-by-case basis.

Dr Marion Frotscher

In early 2025, KARL MAYER announced its strategic decision to focus on its core business areas of Warp Knitting, Warp Preparation and Technical Textiles. As part of this realignment, the flat knitting machine business operating under the STOLL brand was discontinued and the production site in Reutlingen was closed in October 2025.

The agreement now signed provides for the transfer of selected assets to the CIXING Group. The scope of the transaction includes, in particular, the STOLL brand, selected materials and inventories, as well as certain technological assets. Completion of the transaction remains subject to customary closing conditions.

STOLL, defined by German engineering excellence and over a century of continuous innovation, stands for first-class knitting technology. In industrial applications, STOLL machines go far beyond the fashion sector: they are used for a wide range of purposes, such as manufacturing car seat covers, medical bandages, high-performance uppers for sports shoes, and even 3D fiber composites for the aerospace industry. Currently, around 130,000 modern STOLL flat knitting machines are in use worldwide.

As an industry leader with annual revenue of approximately EUR 290 million, Cixing possesses strong industrial manufacturing capabilities, a robust supply chain, and an extensive sales network within the global computerized flat knitting machine sector. The acquisition aims to leverage Cixing’s industrial resources to drive new growth for STOLL, revitalize business operations in Europe and China, and ensure that customers worldwide regain access to high-quality, competitive knitting solutions. This acquisition marks a pivotal milestone in Cixing’s international growth strategy and is expected to fundamentally transform the global supply chain landscape for knitting machines and high-quality textiles. 

ADVANT Beiten advised the CIXING Group on all legal aspects of the asset deal. The transaction once again highlights ADVANT Beiten’s strong expertise in German - Chinese investments and cross-border M&A transactions. An international team worked closely across offices and jurisdictions to efficiently coordinate and implement the legal requirements of the transaction in Germany and China.

Advisors to CIXING Group:
ADVANT Beiten: Dr Barbara Mayer (Freiburg), Christian Burmeister (Berlin and Freiburg, both lead), Dr Christian von Wistinghausen (Berlin), Damien Heinrich (Freiburg), Susanne Rademacher, Lelu Li (both Beijing, all Corporate/M&A), Heiko Wunderlich (Tax, Munich).

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

As part of the funding round, Isar Aerospace secured funding of up to EUR 270 million. In particular, the funding is intended to support the expansion of production capacities and the further scaling of launch vehicle production. The aim is to set up highly automated series production with a capacity of up to 40 Spectrum launch vehicles per year. In addition, the funding strengthens the development of independent European launch capacities for government and commercial satellite missions.

The capital increase was driven by strong interest from international investors. Previous funding rounds have already been supported by the NATO Innovation Fund, Eldridge Industries and Porsche SE, among others.

Island Green Capital (IGC) is a discrete, inflection focused venture capital firm that invests broadly across focus sectors for the US and Allied Nations. These include Aerospace & Defense, AI, Specialty Manufacturing & Robotics, Financial Services, and Software. With a flexible investment approach, IGC evaluates companies from Series A through pre-IPO.  Aside from being true partners at the board and company level, IGC helps with the less visible but often critical work such as structuring non-dilutive debt, employee liquidity programs, and resolving cap table complexity. With its commitment to Isar Aerospace, its first in Germany, IGC underlines its interest in European technology leaders and the increasing importance of the space industry as a key sector for economic and geopolitical sovereignty.

ADVANT Beiten advised Island Green Capital on all legal aspects of the transaction, including the negotiation and review of the relevant transaction documentation as well as the structuring and implementation of the investment. The retention was based on the recommendation of the US law firm Massumi + Consoli, with which ADVANT Beiten advised on the transaction in close coordination. The successful cooperation underlines the law firm's international network as well as its special expertise in complex cross-border venture capital and growth funding. At the same time, the retention confirms ADVANT Beiten's strong position in advising international investors on investments in German and European technology companies, especially in innovation-driven industries of the future such as SpaceTech, DeepTech and DefenceTech.

Advisors to Island Green Capital:

ADVANT Beiten: Dr Dominik Moser, Tassilo Klesen (both Venture Capital/Private Equity, Berlin), Dr Marion Frotscher (Taxes, Hamburg).

Public Relations

Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Threshold for international employee assignments

For employers, the most significant new rule is the introduction of a 35-day de minimis regulation for international employee assignments. This will significantly simplify cross-border work from a tax point of view. As before, employment income can generally be taxed in the employee's country of residence. The country of employment only has the right to tax if the work is physically carried out there and the employee is either on site for more than 183 days within a period of 12 months or the salary is or should be paid by an employer or a permanent establishment in the country of employment. If the activity was carried out, even temporarily, in the country of residence, the respective remuneration was subject to tax in the country of residence. In these cases, wages had to be split up and the employer had to fulfil wage tax obligations both in the employee's country of work and in the country of residence. The newly inserted Art. 14 para. 1a of the DTA provides, in deviation from the previous provision, that in case of an activity lasts up to 35 days per calendar year in the employee's country of residence or in a third country, the right of taxation of the country of employment remains unaffected. 

For third countries, however, this is subject to the right of taxation assigned under the applicable double taxation agreement to this third country. 

In practice, this means a considerable simplification, as the split up of the right of taxation between the country of residence and the country of activity can be avoided in many cases. 

Example: A German employee is employed in the Netherlands. Most of the days he drives across the border to perform his work in the Netherlands. However, he stays in his home office 30 days a year or works from a German location. Notwithstanding these 30 days, the remunaration is only taxable in the Netherlands. 

As the example shows, the regulation is of particular practical importance in home office cases. 

In practice, it is strongly recommended to document the activities and working days and times covered by the regulation. 

International participation exemption 

The wording of the international participation exemption, which provides for a reduction of withholding tax on distributions, has also been amended. While partnerships as beneficial owners were previously expressly excluded from the scope, this has now been deleted. The background to this is that the Netherlands no longer considers partnerships to be taxable persons, but applies a transparent taxation. However, this does not entail an extension of the scope of application, since as before, only companies that directly hold a stake of at least 10% can claim the reduced withholding tax pursuant to Art. 10 DTA. However, according to Art. 3 para. 1 lit. e) DTA, only entities subject to corporate income tax qualify as company. This means that partnerships that are taxed transparently are not covered.

Dr Marion Frotscher

Facts 

The taxpayer held a 50% stake in a target company (GmbH). At the same time, he was also managing director of the GmbH. The purchase price consisted of a fixed price and variable remuneration, which was linked to the continuation of the managing director's activities for at least five years. As part of the sale, the fixed remuneration for the managing director was reduced. The tax office qualified the share of the purchase price, which was linked to the continuation of the managing director's activity, as employment income. Thus, this income would not be subject tot he preferential regime for capital gains, but would have been subject to wage tax. 

Decision

The Federal Fiscal Court developed criteria for the distinction of employment income and capital gains for such cases. 

In order to qualify as employment income, the income has to be a consideration for the management activity. This is always the case if the payment is made "with regard to the employment relationship" and qualifies as consideration for the work performed. In contrast, the payment does not qualify as salary if the it is granted on the basis of other (legal) relationships. In continuation of previous case law, the Federal Fiscal Court also states that a wage payment can also be made by third parties, in this case the buyer of the shareholding. However, a prerequisite would be that the payment can be regarded as consideration for the work performed. For this purpose, an evaluative considering the legal and economic relationship between the third party and the employee must be made on a case-by-case basis. 

Since there was a connection to both types of income in the present case, it was necessary to determine the closer economic link. By doing so, an objective perspective must be used. The subjective intention of the parties, on the other hand, is irrelevant. It must be taken into account that the management of the company can certainly be a value-creating factor in determining a purchase price. This is especially the case if the management has special know-how that is essential for the buyer. In this respect, the fact that the variable component is linked to the activity as managing director does not speak against the classification as a purchase price. The decisive factor is whether the payment is paid as remuneration for a company value (which may be increased by the staffing of the management) or for the activity as managing director. 

As a result, the variable purchase price can only be regarded as remuneration if the market value of the sold participation is below the total purchase price. If, on the other hand, a purchase price (including variable portion) is paid that corresponds to the market value, there is no wage. In the specific case, the fact that – despite a reduction in the remuneration of the managing director – this would have led to a disproportionately high salary increase also spoke against classification as a salary payment. 

The Federal Fiscal Court was unable to decide the case at hand due to a lack of sufficient clarification of the facts, but referred it back to the Finance Court.

Practical consequences

It is common practice to link parts of the share purchase price to certain conditions. Often, a  condition is the continued activity as a managing director. In these cases, there has always been a risk that part of the sale price would be reclassified as wages and thus subject to higher wage tax. Now the Federal Fiscal Court has established criteria that can be used as a basis for contractual arrangements in practice to ensure that taxation is carried out as capital gains.

Dr. Marion Frotscher

Klinikum Westbrandenburg – with its two paediatric and adolescent clinics in Potsdam and Brandenburg an der Havel – was transferred back to its two shareholders, Klinikum Ernst von Bergmann and Universitätsklinikum Brandenburg an der Havel, following a demerger carried out under the law governing corporate conversions. The Potsdam site will now become part of the Klinikum Ernst von Bergmann whilst the Brandenburg an der Havel site will continue to operate as part of the Universitätsklinikum Brandenburg an der Havel.

The Ernst-von-Bergmann Group with more than 4,500 employees is currently undergoing a comprehensive reorganisation process. The current integration at the Klinikum Ernst von Bergmann in Potsdam will establish clear and sustainable structures for paediatrics and adolescent medicine whilst strengthening collaboration between the specialist departments.

ADVANT Beiten has provided comprehensive advisory services to the Klinikum Ernst von Bergmann regarding its restructuring, most recently in connection with the sale of its majority stake in Lausitz Klinik Forst GmbH.

Advisors to Klinikum Ernst von Bergmann: 
ADVANT Beiten: Dr Karl-Dieter Müller (Berlin, in charge), Benjamin Knorr, Robert Schmid, Dr Thomas Jilg (all Corporate/M&A, Berlin), Dr Silke Dulle (Medical Law), Dr Dietmar Müller-Boruttau, Wolf J. Reuter, Dr Martin Kalf (all Labour & Employment, Berlin), Helmut König (Tax, Dusseldorf)

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Klinikum Ernst von Bergmann has sold its majority stake in Lausitz Klinik Forst GmbH to the Foundation Stiftung Evangelische Diakonissenhaus Berlin Teltow Lehnin as part of a structured bidding process.

Advisors to Klinikum Ernst von Bergmann:

ADVANT Beiten: Dr Karl-Dieter Müller (Berlin, in charge), Robert Schmid, Benjamin Knorr, Dr Thomas Jilg (all Corporate/M&A, Berlin), Dr Silke Dulle (Medical Law, Berlin), Helmut König (Tax, Dusseldorf), Christoph Heinrich (Antitrust, Munich)

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr. Karl-Dieter Müller
Lawyer, Tax Consultant
ADVANT Beiten 
+49 30 26471-262
Karl-Dieter.Mueller@advant-beiten.com

Last week, the European Commission presented its proposal for an EU Inc. In the following, we outline the key elements of the current initiative and consider how the proposed legal framework may take shape from both legal and tax perspectives.

Status Quo

Against the backdrop of corporate structures that have existed for decades, the concept of a European legal form — an EU Inc. — has emerged. While Europe constitutes one of the world’s largest internal markets in economic terms, it remains a regulatory patchwork. This presents particular challenges for innovative companies that depend on access to venture capital, pan-European mobility, scalability, a highly skilled workforce and long-term investment. To date, businesses operating — or seeking to operate — across borders have been required to invest significant time and resources in navigating divergent national regulatory regimes.

The existing European legal form available to companies, the Societas Europaea (SE), introduced in 2001, does not adequately address these challenges. As a result, it has not become the standard vehicle for start-ups. It is widely regarded as overly complex. In addition, it requires a minimum capital of €120,000 and leaves key governance matters to be determined by national laws.

EU Inc. Legal Form

After years of limited political traction, the idea of a European company form has regained momentum, driven in part by initiatives from European technology companies, investors and start-up associations.

The EU Inc. is envisaged as a uniform company form operating across Europe within a legal framework designed as a “28th regime”, existing alongside the national regimes of the 27 Member States. It is intended to be incorporated entirely digitally, with a minimum share capital of just €1, and could be established within as little as 48 hours. Start-up costs are expected to be capped at approximately €100.

Companies would therefore be able to operate under uniform capital requirements, supported by a central EU register, standardised investment documentation and a harmonised employee share ownership scheme across Europe.

If realised, the EU Inc. would offer clear economic advantages for both entrepreneurs and investors. Scaling businesses would become more straightforward, and investment processes could be accelerated — for example, through potentially shorter and more streamlined due diligence procedures.

National Tax Sovereignty Remains in Place

The intended simplicity and speed of incorporation should not be undermined by additional registration and onboarding requirements imposed by public authorities. In practice, obtaining a company registration number from the Federal Employment Agency, opening a business bank account and securing a tax registration number have proved particularly time-consuming. A meaningful reduction in administrative burdens would therefore be highly desirable.

However, as the proposed 28th regime is primarily focused on company law, no immediate simplifications in tax rights and obligations are expected. According to statements by the European Commission, certain areas of tax law may also be subject to future harmonisation, although the precise scope remains unclear. Any such measures would, in any event, likely require the unanimous consent of the Member States. Nevertheless, it would make sense to:

• remove tax barriers to cross-border business activities to ensure transparency and simplification; and
• establish uniform criteria for determining administrative headquarters to avoid the double taxation of companies.

Yet, the EU’s tax policy to date makes one point unmistakably clear: the harmonisation of cross-border taxation among Member States remains highly contentious.

Taxation lies at the heart of national sovereignty, as it constitutes the primary source of public revenue. Against this backdrop, the national tax regimes of the Member States will continue to apply within the framework of an EU Inc. Member States will retain full control over tax rates, assessment and enforcement. In practice, an EU Inc. would be treated in the same way as a German private limited liability company (GmbH) and, as a legal entity subject to unlimited tax liability, would be liable to corporate income tax and trade tax where it has its registered office or place of effective management in Germany, as well as to value added tax (VAT) to the extent that it supplies goods or services within Germany. 

Given the extensive harmonisation of VAT rules under the VAT Directive — Member States differ primarily in their rates, which range from approximately 16% to 25% — tax competition in the area of direct taxation will remain largely unaffected and may even intensify as a result of the EU Inc. As the EU Inc. is intended to simplify company formation and expansion (with incorporation possible within 48 hours, a minimum capital requirement of €1 and no need for notarial involvement), businesses will find it significantly easier to relocate their formal seat to any Member State. This is likely to increase competition between jurisdictions for corporate establishments.

As a result, the choice of seat may increasingly be driven by tax considerations, as other factors — such as legal form, administrative burden and costs — become less decisive. Member States will therefore need to offer more attractive tax frameworks to attract new businesses. In this respect, the EU Inc. would strengthen tax competition within the EU without harmonising substantive tax law. A greater alignment of the corporate tax base across Member States — similar to what has already been achieved in VAT — would enhance transparency in tax competition.

From a German policy perspective, the gradual reduction of the overall corporate tax burden to an internationally competitive level of no more than 25% by 2032 represents a key measure in maintaining the attractiveness of Germany as a business location.

Outlook

With its proposal for an EU Inc., the European Commission has sent a clear signal: the European Union intends to significantly simplify company formation and further strengthen the freedoms of establishment and movement of capital. The aim is to enable businesses to operate and raise capital across Europe as seamlessly as they do in jurisdictions such as the United States or China.

However, for all its potential, the transition to a new European corporate framework will be complex. Key considerations — including legal structuring decisions, employment law implications and integration into existing organisational models — will require careful planning and thorough preparation.

Markus P. Linnartz
Dr Christian Osbahr
Selina Köker

The upward tainting has the effect that the originally asset-managing partnership is considered a commercial enterprise for tax purposes from the time it earns commercial income. All income is then treated as commercial. However, this applies exclusively for income tax purposes, not for trade tax. The parent company remains exempt from trade tax liability if it does not carry out any original commercial activities itself. This interpretation was confirmed by the case law of the Federal Fiscal Court and adopted by the tax authorities in an identical state decree of 5 November 2025.

Even if the main tax risk of an additional trade tax liability is eliminated, the upward tainting entails numerous tax changes. In the following, some follow-up topics of an upward tainting are presented:

a) Contribution to the newly created commercial enterprise

With the tainting, a commercial enterprise is created. All assets of the partnership (including real estate, shareholdings, etc.) become business assets for tax purposes and must generally be deposited at the partial value (Teilwert) (Sec. 6 (1) No.. 5 German Income Tax Code).

Exceptions for the partial value contribution:

• Assets that were acquired or produced from private assets within the last three years prior to the date of the transfer (Sec. 6 (1) No. 5 a) German Income Tax Code), or
• Participations in corporations are always to be assessed at the acquisition cost (Sec. 6 (1) No. 5 b) and c) German Income Tax Code)

These assets are to be assessed at the amortised acquisition or production costs. As a result, the hidden reserves become taxable at the time of contribution and are subject to income tax or corporation tax at the latest when the respective assets are sold.

Exceptions also apply for commercial partners of the upper-tier partnership, as the proportionate assets are transferred from the commercial assets of the commercial partner at partner level to the commercial assets of the upper-tier partnership. In principle, the transfer is made at book value (Sec. 6 (5) German Income Tax Code).

Special features of real estate

• Real estate that was acquired in private assets more than three but less than ten years ago at the time of contribution is invested at partial value. If the property is later sold from the business assets and less than 10 years have passed since the original acquisition in private assets, the difference between book value and partial value is taxable (Sec. 23 (1) sentence 5 No. 1 German Income Tax Code).

b) Changes in depreciation rates for real estate

The reclassification as business assets may lead to an adjustment of the depreciation rates. Real estate that was previously depreciated according to Sec. 21 German Income Tax Code (rental and leasing) is now subject to the regulations for business assets (Sec. 7 German Income Tax Code). 

Important changes:

• The depreciation (Absetzung für Abnutzung, AfA) is calculated from the time of tainting in accordance with the tax rules for commercial businesses.
• If necessary, a new depreciation assessment basis (partial value) must be determined.

c) Special operating income and expenditure

The asset-managing partnership previously had no special business sphere (Sonderbetriebssphäre). The upward tainting must be used to check the existence of special business assets (Sonderbetriebsvermögen).

Changes in detail:

• Loans from the shareholders to the company, which were previously not recognised due to the fractional consideration (Bruchteilsebetrachtung), are now considered special business assets. The interest on this is special operating income and thus neutralises the interest expenses in the partnership’s undivided assets (Gesamthandsvermögen).
• The interest income of the shareholder does not constitute capital income, as before, but income from co-entrepreneurship (Mitunternehmerschaft) according to Sec. 15 German Income Tax Code.
• Special operating income and expenses of the general partner (e.g. liability compensation, expense allowances) must now be recognised as part of commercial income. It remains to be clarified whether a reduction in trade tax at the level of the general partner GmbH is required, even though no trade tax arises at the level of the partnership..

These changes also affect the preparation of e-balance sheets (see point e).

d) Over-withdrawals pursuant to Sec. 4 (4a) German Income Tax Code

With the tainting, the provisions of Sec. 4 (4a) of the German Income Tax Code apply to the upper-tier partnership. Withdrawals exceeding profits and contributions are treated as excessive withdrawals, which may result in a limitation of the deduction of interst expenses.

e) Preparation of amended assessments of results and e-balance sheets

The upward tainting requires the preparation of uniform and separate profit assessments (einheitliche und gesonderte Gewinnfeststellung) in accordance with Sec. 15 German Income Tax Code. Other types of income, e.g. income from capital assets or renting and leasing, can no longer be determined.

Major changes:

• Previous surplus income from renting and leasing (Sec. 21 German Income Tax Code) or capital assets (Sec. 20 German Income Tax Code) must now be reported as commercial income. The surplus of income over the income-related expenses no longer applies, but the profit is determined in accordance with Secs. 4 to 6 German Income Tax Code.
• The company must submit e-balance sheets in accordance with the requirements for commercial operations, including special and supplementary balance sheets.
• The declaration of assessment must reflect the amended impact on capital accounts and the offsetting of losses pursuant to Sec. 15a German Income Tax Code.

Special features in the event of liquidation or withdrawal of a shareholder:

• Negative capital accounts are subject to retrospective taxation pursuant to Sec. 52 (24) sentence 3 German Income Tax Code.

Conclusion

The upward tainting of an asset-managing partnership has far-reaching tax consequences. Even if trade tax is not liable, numerous changes in tax treatment must be observed. In particular, the contribution of assets, the adjustment of depreciation rates, the consideration of special operating income and expenses as well as the preparation of amended profit assessments and e-balance sheets require careful tax planning and implementation.

Final note

Caution is advised if the tainting is terminated by the commercial partnership, e.g. if it is sold or ends its commercial activity. Then tax implications arise again. A cessation of business occurs (Sec. 16 German Income Tax Code), and the business assets are transferred back into private assets.

Jens Müller

Banyan Software was founded in 2016 and regularly acquires growing software companies with the aim of developing them over the long term as part of a buy-and-hold strategy. Banyan Software has locations in Canada, the United Kingdom and the DACH region. 

Gini was founded in 2011 and has established itself over more than a decade as a trusted provider of document and payment AI platforms. Among other things, its solutions simplify invoice payments, automate data capture and are firmly anchored in the work processes of leading financial institutions. Under Banyan's new ownership, Gini will continue to expand its market presence, particularly in the banking sector, private health insurance and e-commerce. 

Following the transaction, the company's location and product development will continue.

ADVANT Beiten regularly advises Banyan Software on the implementation of its growth strategy in the DACH region, most recently in June 2025 on the acquisition of star/trac.

Advisor Banyan Software:

ADVANT Beiten: Christian Burmeister (Lead), Damien Heinrich, Julius Bauer (all Corporate/M&A), Heiko Wunderlich, Fabian Moser (both Tax), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT), Michael Riedel (Employment Law).

Public Relations
Frauke Reuther
Manager Communications
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Global trends: stagnation and setbacks

The CPI assesses 182 countries and territories on a scale of 0 (high perception of corruption) to 100 (low perception of corruption) based on the assessments of experts and executives. 

CPI 2025 shows that corruption remains a widespread global problem:

• The global average score is just 42 points, the lowest level in over a decade.
• More than two-thirds of countries score less than 50 points – a clear indication that in most countries, control and rule of law structures remain weak or are under pressure.
• Even in established democracies, setbacks can be observed as democratic control mechanisms such as an independent judiciary, free media and transparent political processes come under pressure.

These findings have a direct impact on the legal certainty and risk environment for companies operating internationally. This is because perceived corruption influences not only political decisions, but also economic conditions such as procurement procedures, regulatory enforcement and the integrity of public institutions.

Germany in the CPI 2025

• Position in the global ranking

Germany scores 77 out of 100 points in the CPI 2025, which puts it in a respectable 10th place in the international comparison. This means that the Federal Republic remains one of the ten countries with the lowest perceived corruption worldwide.

At first glance, this positioning is positive – it signals reliable state structures and comparatively low corruption risks. However, a closer look reveals a more nuanced picture.

• Improvement by two points – but long-term decline

Germany has improved by 2 points compared to the previous year and has risen 5 places in the ranking – but this increase is not solely a reflection of real improvements in the corruption situation. Rather, it can be explained in part by the fact that other countries have fallen more sharply in the ranking.

The long-term trend is more critical: a comparison over the last ten years shows that Germany has lost a total of 4 points over this period. This suggests that effective measures to combat corruption may not have been developed to the same extent in practice as in other countries.

• Civil society and control mechanisms under pressure

The report by Transparency International Germany explicitly points out that civil society control bodies are increasingly exposed to attacks – for example, in the form of defamation, hate speech or political pressure on critical organisations.

This development is not only a democratic problem: a strong, independent civil society is a central component of effective anti-corruption structures. Where it is weakened, the risk of corruption going undetected or unpunished increases.

• Dismantling control mechanisms – a warning sign

An additional structural warning sign concerns legislative measures that are being discussed in public debate under the banner of "bureaucracy reduction". Transparency International Germany, for example, criticises the fact that certain protective mechanisms in public procurement law have been restricted by newly adopted acceleration laws, even though greater transparency and control are needed, particularly in the context of large public investment programmes.

This debate is particularly relevant for companies and compliance officers: weaker control mechanisms in public procurement or in the allocation of subsidies not only increase the risk of corruption, but also exacerbate legal risks for companies in the bidding or contract phase.

Relevance for companies and compliance officers

Why is the CPI 2025 so important for companies and their compliance strategies? The answer lies in several mechanisms:

1. Risk analysis and strategic decisions

The CPI serves as an indicator of the external risk environment for many companies. A low score or a negative trend can mean:

• a higher probability of bribery attempts,
• stronger informal influence on decision-makers,
• less reliable law enforcement.

A well-founded anti-corruption risk assessment is therefore essential, especially when making international market or investment decisions.

2. Expectations of regulators and partners

Regulatory authorities, investors and business partners are increasingly placing value on structural compliance programmes that also address political and institutional risks. Companies are assessed on the extent to which they implement active prevention and control mechanisms that go beyond internal ethical regulations.

3. Reputational risks and sustainable action

In an environment where perceptions of corruption and public scepticism are growing, mere participation in business processes can make a company appear to be involved in systemic risk – even if there are no specific wrongdoings. Effective compliance programmes therefore serve not only to avoid legal issues, but also to strengthen stakeholder confidence.

ADVANT Beiten: Your partner for robust anti-corruption compliance

Against the backdrop of the CPI 2025 results, it is clear that systematic and legally compliant anti-corruption compliance remains a key success factor – both for national companies and for internationally active corporations:

Risk-based compliance programmes

We help you develop risk-based compliance programmes that:

• are tailored to the specific risks of your industry and business processes,
• take into account legal requirements such as the German Section 299 of the Criminal Code, international standards (e.g. OECD anti-bribery rules) and EU directives.

Internal control and governance structures

We review existing control mechanisms, guidelines and internal processes to identify weaknesses and minimise legal risks – including in the areas of public procurement, lobbying, procurement law and third-party risks.

Training and awareness

A key component of any effective compliance strategy is training that equips managers and employees to deal with corruption risks and apply internal rules correctly.

Advice in suspected cases and crisis management

If you are confronted with suspected corruption, we will support you not only in the legal assessment, but also in communicating with authorities and developing strategic countermeasures.

Conclusion

Transparency International's CPI 2025 shows that corruption remains a global challenge – even for stable democracies such as Germany. Despite a good ranking for the time being, long-term trends and structural weaknesses are reason enough to view compliance not as a chore, but as a strategic necessity.

Especially in times of changing regulatory conditions and growing social expectations, it is crucial to anchor compliance systematically and sustainably. ADVANT Beiten supports you in this as a competent legal partner – in line with the growing relevance of the CPI in your business practice.

Martin Seevers

Free Trade Agreement

The EU and India have concluded negotiations on a major new free trade zone. This was announced by EU Commission President Ursula von der Leyen and India's Prime Minister Narendra Modi in New Delhi.

The dismantling of trade barriers and tariffs is intended to boost the exchange of goods and services between the EU and India. The aim is to promote growth and jobs and at the same time reduce undesirable dependencies on other countries. 

Against the backdrop of the aggressive tariff and trade policy of the USA and China's increasing striving for power, the agreement is also considered a geopolitically significant step.

Which tariffs will be reduced or abolished?

The agreement paves the way for the opening of the Indian market, which has so far been very closed to companies from the EU, which is already the country's largest trading partner. Tariffs on more than 90 percent of EU exports to India will be abolished or reduced. For 30 percent of goods traded with the EU, tariffs will fall to zero. For example, most tariffs on industrial goods such as machinery, electrical equipment, chemicals and pharmaceuticals will be completely abolished. In addition, customs procedures are to be simplified. The EU said it is expected that the agreement will lead to a doubling of EU exports to India by 2032.

The European car industry will benefit in particular. India's car tariffs will fall from 110 to ten percent over five years. This applies under an annual quota of 250,000 vehicles and should significantly benefit Volkswagen, BMW, Mercedes-Benz and Renault. Also, for Italy, the agreement represents a particularly significant opportunity; the Italian automotive sector, with its premium and specialised brands, will surely benefit from the reduction of tariffs opening new growth prospects in the world's third-largest automotive market.

At the heart of the agreement is the agri-food sector, characterised by high levels of tariff protection in India, with average duties exceeding 36% and peaks of up to 150%. The agreement provides for a significant reduction in duties on numerous European products that are key to France, Italian and German exports: tariffs on wines will fall from 150% to 75% upon entry into force and subsequently to 20%; duties on olive oil will drop from 45% to 0% over five years; for processed agricultural products, such as pasta, biscuits and confectionery, duties of up to 50% will be eliminated.

For Italy, with its excellence in the agri-food sector, the agreement opens particularly favourable prospects. The abovementioned sectors represent the heart of Made in Italy agri-food and the reduction of tariff barriers could translate into a significant increase in Italian exports to a market of over 1.4 billion consumers, with a rapidly expanding middle class. 

What are the exceptions?

Agricultural products and cars from India are not affected by the tariff reduction. Beef, rice, sugar, dairy products and poultry are exempt from the agreement. EU food safety rules remain unchanged. In contrast to the postponed Mercosur agreement – the other major FTA that the EU wants to conclude – no protest from farmers is to be expected.

Where should cooperation be strengthened?

India is seeking better access to the EU's duty-free import quotas for steel. A decision on this is expected by June 30. Not only goods, but also services are affected by the agreement. The EU is opening more than 140 service sectors to India, and India is opening up almost 100 to the EU. The agreement also establishes binding rules on labour rights, environmental protection and women's empowerment. Digital trade rules are designed to support the economy while ensuring privacy and security.

Following the agreement on the new FTA, the EU and India also want to cooperate more closely in the areas of security and defence. Both sides agreed on a corresponding partnership in New Delhi. The aim should be projects in the areas of maritime security, counter-terrorism and cyber defence, the EU Commission announced.

Market with almost two billion people

Commission President von der Leyen said that the EU and India were making history today "and deepening the partnership between the world's largest democracies". A free trade zone with two billion people would be created, from which both sides would benefit economically. In addition, it sends a signal to the world that rules-based cooperation continues to deliver excellent results.

The agreement will not be as comprehensive as that of the EU with the Mercosur states. Given the size of the Indian market, it is nevertheless one of the largest that has been agreed so far.

Special attention from regulators will be required regarding the equivalence of standards and quality used for manufacturing products to be imported into the EU under this agreement, comparable to those imposed on competing EU-made products. Equivalence of rules regarding the free movement of goods enforced in the EU will also be necessary to ensure that EU producers are not disadvantaged by unfair or detrimental competitive conditions. For the same purposes, FSR rules will contribute to balancing the rights and obligations of non-EU manufacturers competing with EU producers.

India is the most populous country in the world with more than 1.45 billion inhabitants, ahead of China. Around 450 million people live in the EU. Together, the two sides represent nearly a quarter of the world's GDP and population.

The German-Indian trade volume was around 31 billion euros in 2024. Goods worth 17 billion euros were exported from Germany to India, from where goods worth 14 billion were imported. In the past ten years, the trading volume has almost doubled. In India, around 2,000 German companies are represented with subsidiaries that employ a total of more than 500,000 people.

Italy–India trade relations have also shown steady momentum in recent years. In 2024, bilateral trade amounted to approximately €14 billion, with Italian exports to India exceeding €5 billion and imports from India accounting for the remainder. Preliminary figures and official statements for 2025 confirm a broadly stable trade volume, with both governments emphasising the strategic importance of further deepening economic ties. The Italian Government has repeatedly highlighted India as a key partner in the Indo-Pacific region and has publicly supported the EU–India FTA as a crucial instrument to expand trade flows, enhance market access for Italian companies and foster long-term industrial and investment cooperation, with an explicit objective of significantly increasing bilateral trade volumes over the coming years.

What are the reactions?

In New Delhi, EU Commission President von der Leyen spoke of a signal to the world that rules-based cooperation continues to deliver excellent results. "The EU and India are making history today," the Commission President stressed. Indian Prime Minister Modi said the agreement opens up great opportunities for India's 1.4 billion people and people. Business representatives also praised the agreement. For example, Volkswagen CEO Blume said that India, as the world's third-largest automotive market, offers great opportunities.

It is likely to take some time before the agreement comes into force. The reason is that the text of the contract still has to be legally reviewed. It will then also need the approval of the Member States and the European Parliament.

German industry hopes for a speedy announcement of the agreement. This would be a real game-changer, said the head of foreign trade at the German Chamber of Industry and Commerce, Volker Treier. He added that it was important that market access was not prevented again through the back door with bureaucratic rules. "In order for companies to be able to use the agreement, the documentation of the origin of the goods must not contain any new documentation obligations."

Italian industry has also welcomed the conclusion of the EU–India FTA as a major strategic breakthrough. Confindustria described the closure of negotiations as “an extremely positive signal”. Italian business organisations have long been strong advocates of the FTA, emphasising that ambitious commercial policy and clear, high-standard rules can enhance competitiveness and strengthen supply-chain resilience for Italian firms. 

As far as France is concerned, the sectors most likely to benefit are the wine industry, which is suffering from declining domestic consumption, as well as the technology, automotive, and defense markets, which will benefit from expanded access to a rapidly growing Indian market. Sensitive agricultural sectors have also been protected, as mentioned above, which was essential for France. The full effects are expected to materialize over several years, with tariff reductions being implemented gradually.

ADVANT provides legal and tax advice to SMEs and has been supporting cross-border investments and M&A projects for many years. In recent years, India has taken on an increasingly important role – for internationally positioned companies or those that want to become one. 

We look forward to continuing to support our clients on their way to India.

Markus Linnartz
Filippo Federici
Paolo Gallarati
Fabien Pouchot
Marie Hindré

For companies, this means significantly increased liability risks. In addition, there is an urgent need to overhaul compliance systems. The amendments will come into force immediately after their expected publication in the Federal Law Gazette.

1. Background

The amendments adopted in the German government's draft bill "on the adjustment of criminal offences and sanctions for violations of restrictive measures of the European Union" (21/2508) are intended to transpose the EU requirements of Directive (EU) 2024/1226 on the definition of criminal offences and sanctions for violations of restrictive measures of the European Union into national law. 

The aim of the EU Directive is to harmonise and standardise the enforcement of sanctions, which has varied significantly between Member States to date, by aligning the criminal law definitions and consequences for offenders who violate EU sanctions. Although the EU itself can issue binding sanctions regulations, the responsibility for criminal prosecution (criminal jurisdiction) of violations remains with the respective Member States. 

Although the German Foreign Trade and Payments Act (Aussenwirtschaftsgesetz, AWG) already went beyond the minimum requirements of the EU, the directive requires further additions to the criminal offences (e.g. circumvention, reporting obligations, reckless dual-use violations) as well as specific sanction frameworks for legal entities.

2. Key criminal law changes in the AWG

In order to implement the requirements of the directive, the Foreign Trade Act is being amended, primarily. This primarily affects the key criminal and administrative offence provisions of Sections 18 and 19 AWG as well as consequential amendments to Section 82 of the Foreign Trade Ordinance (Außenwirtschaftsverordnung, AWV). Further amendments concern the Customs Investigation Service Act (Zollfahndungsdienstgesetz) and the Residence Act (Aufenthaltsgesetz), which will not be discussed here.

2.1 Sanctions violations, particularly in the financial sector, become criminal offences

One of the most significant changes is the upgrading of numerous offences from administrative offences to criminal offences. Violations that could previously only be prosecuted as administrative offences are now subject to mandatory penalties if committed intentionally. This applies in particular to intentional violations of certain transaction bans, financial services and payment bans, circumvention activities and, beyond the requirements of the directive, investment bans. These include, among other things, the acts previously listed in Section 82 (9) Nos. 4, 6, 7 and 9 AWV, such as the purchase, trading or listing of Russian securities and money market instruments issued after 9 March 2022. Violations may in future be punished with prison sentences of between 3 months and 5 years.

Similarly, a violation of the so-called duty to report – the duty to report information, in particular about possible sanctions violations, to the competent authorities – is no longer punishable as an administrative offence, but as a criminal offence with a prison sentence of up to 1 year or a fine, provided that the information was obtained in the exercise of a professional duty and concerns funds or economic resources to be frozen. The legal profession is exempt from criminal liability if the information was entrusted to them in their professional capacity or disclosed to them. 

A particularly critical aspect is that the existing possibility of avoiding fines for a large number of negligent violations by means of voluntary disclosure pursuant to Section 22 (4) AWG will no longer apply in future due to the reclassification of administrative offences as criminal offences. This increases the pressure on companies to take action against preventive sanctions violations, as it will be much more difficult to limit the damage retrospectively.

2.2 Criminal circumvention of EU sanctions

A new separate criminal offence has been introduced in Section 18 (1) No. 3 AWG with regard to certain acts intended to circumvent EU sanctions. This makes any use of frozen funds and resources a criminal offence if it is done with the intention of concealment. In addition, the dissemination of false, misleading or incomplete information with the intention of concealing the sanctioned ownership or possession of funds or economic resources will in future be punishable by imprisonment of between three months and five years.

2.3 Tougher penalties for violations of goods-related sanctions 

The tightening of goods-related sanctions is particularly relevant in practice. Here, new risks arise in particular in the trade in goods that can be used for both civilian and military purposes (so-called dual-use goods). Until now, reckless behaviour was only punishable in the case of certain violations of arms embargoes involving goods listed on the EU Military Goods List. However, reckless violations of certain prohibitions relating to goods listed on the EU dual-use goods list were only punishable as administrative offences. In future, reckless conduct in the export of dual-use goods will also be prosecuted as a criminal offence for the first time and punished with imprisonment of up to three years or a fine. 

A particularly serious case with prison sentences of 6 months to 10 years is introduced in Section 18 (6a) AWG. This is the case for example, if, in the context of a goods trading transaction, incomplete or incorrect information is provided to public authorities about the end use, transport route, recipient, consignor, origin, buyer, seller, quantity, value or nature of the goods in order to conceal a violation of EU sanctions. The use of a third-country company to conceal such a violation is also punishable if the perpetrator exercises a controlling or decisive influence over that company.

2.4 Significant increase in corporate fines

The new law brings with it a significant tightening of the rules for legal entities and associations of persons. The upper limit of the penalty portion of a corporate fine under Section 30 of the Administrative Offences Act (OWiG) will be quadrupled from the current EUR 10 million to EUR 40 million for underlying sanctionable offences committed by managers. This also applies to breaches of supervisory duties under Section 130 of the Administrative Offences Act (OWiG). However, no use was made of the option provided for in the EU Directive to impose fines of up to 5% of global annual turnover.

2.5 Elimination of relief measures for the timely implementation of new sanctions 

The grounds for exemption from punishment in Section 18(11) AWG, according to which no punishment was previously imposed on anyone who committed the offence by the end of the second working day after publication of the legal act in the Official Journal of the European Union, has been deleted. In practice, this particularly affects the inclusion of new natural or legal persons on the EU sanctions list and the associated business prohibitions. For companies, this effectively means that they are forced to implement new sanctions requirements almost immediately. 

2.6 Trust administration for Russian subsidiaries

New are explicit regulations that allow for public-law trust administration for European subsidiaries of Russian parent companies in the event of a concrete threat to public security and Germany's foreign interests. At the request of the company, a share custodian can also be appointed by the court to exercise the administrative rights arising from the shareholder position. This is intended to strike a balance between preventing circumvention or violations of the EU sanctions packages against Russia on the one hand and preserving jobs and safeguarding creditor interests on the other.

3. Relevance of the new regulations? 

The reform of criminal sanctions law leads to a significant increase in liability risk for companies and their managers. The risk landscape in the area of sanctions is shifting significantly to the detriment of companies. Almost all intentional violations of EU sanctions regulations will be punishable by law, in some cases supplemented by reckless offences, and the upper limit for fines for companies will rise to up to EUR 40 million. This increases both the financial risks and the personal liability risk for executives and compliance officers, especially since typical organisational deficits (e.g. missing or insufficient sanctions list checks, incomplete documentation, inadequate training) can now quickly become relevant under criminal law. The elimination of the grace period forces companies to record changes in the EU sanctions situation on a daily basis and to implement them immediately in their operations; delays in IT systems, processes or internal communication can now directly result in criminal liability risks. 

4. What should be done?

Against this backdrop, companies should comprehensively review and refine their sanctions compliance systems. This includes, in particular, a risk-based approach with systematic risk analysis along the entire value chain, robust sanctions list screenings (customers, suppliers, business partners, beneficial owners), clear process responsibilities and complete documentation of checks and decisions. In the area of dual-use goods in particular, technical classification, end-use and end-user checks, and the monitoring of re-exports and transit trade relationships with third-country companies are essential in order to counter the new circumvention and recklessness provisions. 

Companies should also design reporting processes for frozen assets and other sanction-related information in such a way that deadlines are met and responsibilities are clearly assigned. Finally, in view of the stricter penalties, regular training of sales, export control, finance, procurement, logistics and management staff is essential in order to raise awareness of the increased personal and corporate responsibility under sanctions law.

How we can support you

ADVANT Beiten's tax and white-collar crime practice specialises in the prevention, support and resolution of tax and criminal law risks in the financial sector. As a highly specialised unit with many years of industry experience in the financial sector, we combine expertise in criminal law with in depth tax law and regulatory know-how.

We provide advice on tax and commercial criminal law, tax controversy, anti-financial crime financial sanctions, and all related compliance issues, as well as the conduct of internal investigations.

In addition to preventive advice, we provide comprehensive defence for companies and individuals in tax and white-collar crime cases and represent them before financial and specialist authorities (e.g. BaFin). All lawyers in the team are also qualified as Certified AML & Anti Fraud Officers.

Our team provides comprehensive support and advice on all aspects of criminal law law, including representation and defence in cases of sanctions violations. We also offer individual legal advice on embargo law issues, and assistance with the drafting, operational review and adaptation of your sanctions compliance programme (SCP).

Martin Seevers, LL.M. Tax (USA)
Guido Storck

In a recent inquiry issued in December 2025, BaFin requires supervised entities to provide comprehensive information by early March on potential exposures arising from the tax treatment of Cum/Cum transactions. This inquiry goes well beyond previous information requests. It is expressly issued against the backdrop of the increasingly intense debate in tax and criminal law and therefore also covers periods that are tax-relevant only if the underlying transactions are classified as criminal conduct. In addition, the inquiry is intended to support BaFin’s assessment of governance and business organisation pursuant to section 25a of the German Banking Act (KWG).

For the institutions concerned, this results in significant legal, regulatory and operational challenges. These range from the need for new and more in-depth transaction analyses, to potential parallel disclosure obligations vis-à-vis the tax authorities in order to mitigate criminal tax risks, and on questions concerning the design and adjustment of tax compli-ance frameworks.

This brief article provides an overview of the key challenges arising from BaFin’s current Cum/Cum inquiry.

Background

The tax treatment of “Cum/Cum transactions” and other tax-driven securities lending arrangements around the dividend record date has occupied the German financial industry and tax authorities for many years.

Until now, public and media attention regarding alleged tax fraud has largely focused on Cum/Ex cases. Their criminal nature has since been confirmed by the Federal Court of Justice (Bundesgerichtshof – BGH). Although Cum/Ex and Cum/Cum transactions are similar in name, they are structurally very different.

Put simply, Cum/Cum structures are designed to arrange share transactions around the dividend date in such a way that foreign shareholders are able to benefit economically from tax credits or refunds on domestic dividend income, similar to domestic taxpayers – even though, under the statutory framework, such benefits are not available to them, or at least not to the same extent.

Illegal Cum/Ex transactions, by contrast, were aimed at obtaining a double or even multiple refund of capital gains tax that had only been paid once to the German tax authorities. In other words, they involved a direct and deliberate extraction of tax funds and were in some cases pursued with considerable criminal energy.

Nevertheless, the tax revenue loss attributable to Cum/Cum structures is substantial. In Germany, it is estimated in part to exceed EUR 28 billion, which would make it more than twice as high as the losses caused by Cum/Ex transactions.

Unlike Cum/Ex, Cum/Cum structures were already classified as impermissible tax arrangements by the Federal Fiscal Court (Bundesfinanzhof – BFH) in 2015, and subse-quently by fiscal courts in numerous cases. However, a criminal law prosecution compa-rable to that of Cum/Ex cases did not materialise for a long time. This has now changed perceptibly as a result of the OLG Frankfurt decision of 10 December 2024 (3 Ws 231/24), which for the first time allowed an indictment for tax evasion based on tax-driven securities lending transactions. This decision is likely to have significant signalling effects for the criminal law treatment of Cum/Cum structures more generally.

Correspondingly, tax authorities – particularly in the German federal state of North Rhine-Westphalia – have adopted a noticeably more aggressive approach to Cum/Cum struc-tures. Similar to the OLG Frankfurt’s view, criminal tax allegations are being raised, and banks are being assessed for taxes arising from Cum/Cum transactions carried out more than 20 years ago in some cases.

BaFin has now taken up this development and expressly justifies the need for what is now its fourth Cum/Cum inquiry (following those in 2017, 2020 and 2021) by reference to the “increasing discussion in tax (criminal) law”.

Notably, BaFin does not regard the inquiry as relevant solely from a prudential risk perspective. Rather, it explicitly points out that participation in Cum/Cum transactions may also affect how BaFin assesses the governance and proper business organisation of supervised entities. This confirms our experience from BaFin special audits and statutory audits in connection with Cum/Ex cases: the handling of tax risks in the financial sector has firmly moved into BaFin’s focus. From BaFin’s perspective, tax compliance in the financial sector is therefore no longer an isolated task of the tax department, but part of the institution’s overall compliance organisation within its non-financial risk (NFR) management and subject to the statutory requirements for proper business organisation under section 25a KWG.

From Market Consensus to the OLG Frankfurt’s Reversal

Distinction from Cum/Ex

The comparatively lower level of attention paid to Cum/Cum transactions over many years was also reflected in their legal assessment, particularly under German criminal law.

The reluctance to treat Cum/Cum structures as criminal was largely based on their structural distinction from Cum/Ex. Cum/Ex transactions were deliberately designed to obtain multiple refunds or credits of capital gains tax without corresponding tax pay-ments having been made. Cum/Cum arrangements, by contrast, were “merely” intended to reduce the tax burden on domestic investment income for non-resident taxpayers as far as possible and to place them economically on a par with domestic taxpayers.

Against this background, the prevailing market view for a long time was that Cum/Cum arrangements did not fulfil the objective elements of tax fraud.

Decision of the Wiesbaden Regional Court

This view was still confirmed at the beginning of 2024 by the Wiesbaden Regional Court (Landgericht – LG). In its decision of 12 February 2024 (6 KLs 1141 Js 23929/12), the court refused to open main proceedings in relation to tax-driven securities lending transactions and denied the existence of the objective elements of tax fraud.

This decision reflected the long-standing market consensus and formed the basis for numerous internal review projects at financial institutions. It also often determined the scope of responses to BaFin’s previous Cum/Cum inquiries in 2017, 2020 and 2021.

Decision of the Frankfurt Higher Regional Court

However, with its decision of 10 December 2024 (3 Ws 231/24), the OLG Frankfurt called this line of reasoning into question. Contrary to the view of the Wiesbaden Regional Court, the OLG assumes that Cum/Cum structures can, in principle, meet the elements of tax fraud.

The decision was based on a tax-driven securities lending programme in which a domes-tic taxpayer lent fixed-income securities to a non-resident taxpayer and, in return, received German shares as collateral over the dividend record date. The tax benefit for the non-resident was realised through compensation payments between the parties. One of the particular features of the case was that the shares provided as collateral were subject to a prohibition on disposal, meaning that the domestic taxpayer could not freely dispose of them. This had decisive implications for the attribution of beneficial ownership of the shares and for the assessment of abuse under sections 39 and 42 of the German Fiscal Code (AO).

Despite these specific features – which may indeed not have been present in many other market structures – the decision has considerable signalling effect. For the first time, it clearly establishes that Cum/Cum transactions are not per se outside the scope of criminal relevance.

Consequences for Limitation Periods and Risk Analysis

The potential classification of Cum/Cum arrangements as tax fraud has significant practical consequences. In particular, the relevant limitation periods are substantially extended. Completed Cum/Cum review projects and tax corrections may therefore prove to be incomplete. While some institutions have responded to these developments with new analysis projects, others have so far taken no further action.

BaFin’s Inquiry of 15 December 2025

Against this backdrop, BaFin sent a new, comprehensive inquiry to financial institutions at the turn of the year 2025/2026. The aim is to reassess existing risks arising from Cum/Cum structures and their impact on financial market stability.

The inquiry explicitly refers to the OLG Frankfurt decision and is notable for its broad temporal scope: transactions dating back to 2010 are covered. Such a time frame is only tax-relevant if extended limitation periods of ten or even fifteen years apply as a result of a classification as tax fraud.

Although BaFin had already sent similar inquiries in 2017, 2020 and 2021, the current request represents a new level of intensity. Earlier inquiries could often be answered on the basis of the then prevailing assumption that Cum/Cum did not constitute tax fraud. As a result, analyses were typically limited to periods that were not yet time-barred for tax purposes, applying the standard four-year limitation period.

This approach is no longer readily available. The new inquiry forces institutions to include much earlier years if they could still be risk-relevant due to extended criminal limitation periods of up to fifteen years.

Important note:

The transaction analyses required to respond to BaFin’s inquiry should, as a matter of urgency, be accompanied by considerations as to whether and to what extent the results may need to be disclosed to the tax authorities in order to mitigate criminal tax risks – for example under section 153 AO (correction of tax returns) or even section 371 AO (voluntary disclosure). In individual cases, it may therefore be advisable to extend the analysis period beyond 2010.

Conclusion

Current developments significantly increase the pressure on financial institutions. Institutions that have already carried out comprehensive and complete Cum/Cum analyses in recent years are generally in a position to respond to the new BaFin inquiry in a robust manner.

By contrast, institutions that have not yet fully examined periods back to 2010 face considerable challenges. Until the beginning of March 2026, they must not only prepare well-founded responses to BaFin, but may also need to reassess the tax treatment of transactions from long-past years. This requires an extremely complex and data-intensive process.

Irrespective of this, the central legal question remains unresolved: whether Cum/Cum structures, in all their variants, ultimately qualify as tax fraud has not yet been conclu-sively clarified by German criminal courts. Regulatory and criminal law pressure on financial institutions is nevertheless continuing to increase – and is unlikely to abate in the short term.

How We Can Support You

ADVANT Beiten’s Tax and White-Collar Crime practice in the financial sector specialises in the prevention, management and resolution of tax and criminal law risks in the financial industry. As a highly specialised team with many years of sector experience, we combine criminal law expertise with in-depth tax law and regulatory know-how.

Our advisory focus includes tax and white-collar criminal law, tax controversy, anti-financial crime and financial sanctions, as well as all related compliance topics and the conduct of internal investigations.

In addition to preventive advice, we comprehensively defend companies and individuals in tax and white-collar criminal matters and represent them before tax and regulatory authorities (including BaFin). All lawyers in the team are also qualified as Certified AML & Anti-Fraud Officers.

Our team supports you in providing legally sound responses to BaFin’s current inquiry. We assist with the design and operational implementation of the necessary transaction analyses, considerations regarding potential disclosure obligations to the tax authorities to mitigate criminal tax risks, and the possible implications of investigation results for BaFin’s assessment of governance and business organisation.

Martin Seevers, LL.M.
Julian Niederlein

Information on shell companies in tax havens

Offshore service providers enable their customers to set up foreign companies, known as shell companies, in low-tax areas (tax havens). The intermediary role of the companies and, in some cases, straw men serves to hide money from the German tax authorities. This arrangement is often used to evade taxes or to conceal assets obtained through criminal activities.

The LBF NRW has more than one terabyte of data on foreign companies around the world and the beneficial owners behind them. This also includes taxpayers in Germany. Once the data has been processed, it will also be made available to authorities in other federal states and foreign partners.

Criminal prosecution and searches

It is to be expected that numerous taxpayers named in the data will be subject to both tax and criminal investigations; searches are also likely, as in similar cases in the past. Tax evasion has not been a trivial offense for years and can lead to heavy fines or prison sentences. According to the German Federal Supreme Court, tax evasion involving an amount of more than EUR 1 million should generally result in a prison sentence without parole. In most cases, hopes of the statute of limitations expiring are unfounded. Tax evasion in particularly serious cases does not expire before 15 years have elapsed. The courts consider cases involving amounts of EUR 50,000 or more to be particularly serious.

Voluntary disclosure exempting from punishment possible

As long as the tax authorities have not yet discovered a case, i.e., have not yet evaluated the data, it is still possible in individual cases to submit a voluntary self-disclosure that exempts from punishment. 

The decisive factor is now to disclose the facts in full to the authorities in a voluntary self-disclosure or, if not all documents are available, to first disclose the taxable income to the authorities by means of an estimate.

Whether voluntary self-disclosure exempts the taxpayer from punishment depends on whether the authorities discovered the offense first or whether the taxpayer preempted the discovery by making voluntary disclosure. Even if the offense has already been discovered, cooperative and complete voluntary disclosure and payment of the evaded taxes will in any case result in a more lenient punishment. 

Action is the order of the day

Our team of criminal defense attorneys, specialists in criminal tax law, and tax advisors will support you — even at short notice — in making your decision and represent you before the tax and law enforcement authorities.

Dr. Jochen Pörtge
Martin Seevers
Volker Küpper

ProMach is a leading international platform in the field of packaging and processing technologies.

DFT is an established provider of innovative solutions in the field of sterilization, pasteurization and other thermal processes for the food and beverage industry. With the acquisition of DFT, ProMach is continuing its growth strategy in Europe.

The international cooperation within the ADVANT alliance played a central role in this transaction: our Italian alliance partner ADVANT Nctm has been advising ProMach in Italy for many years.

ADVANT Beiten entered into the mandate in close coordination with the US law firm Thompson Hine, which regularly advises ProMach on legal matters in the United States.

Advisors to ProMach:
ADVANT Beiten: Prof Dr Hans-Josef Vogel (Dusseldorf), Roy Naor (Frankfurt, both Corporate/M&A, lead partners), Dr Andreas Imping, Anna Kubitz (both Labour Law), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT), Sarah Peters, Simon Litterst (both Corporate/M&A, all Dusseldorf), Christopher Harten (Dispute Resolution, Hamburg), Marcus Mische, Markus Linnartz (both Tax), Thomas Herten (Real Estate, all Dusseldorf), Katrin Lüdtke (Public Sector, Munich).

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

The Büter Group comprises German and Dutch (production) companies and is one of Europe's leading companies in the hydraulics industry. Founded in 1965, the family-owned company is headquartered in Emmen (NL) and has production facilities in Haren and Meppen (DE). It employs around 550 people. Over the past six decades, the family-owned company has developed numerous patents and utility models in cylinder and lifting technology and is now one of the technological market leaders in the industry.

NPM Capital, part of the family-owned SHV Group, is an investment partner based in the Benelux countries that focuses on long-term partnerships with family-owned and entrepreneurially managed companies. As part of the transaction, NPM Capital is acquiring the entire group of companies, including the two German subsidiaries Büter Hebetechnik GmbH and Büter Maschinenfabrik GmbH.

By joining forces with NPM Capital, Büter Group is well positioned to accelerate its growth strategy and continue to invest in technological innovation and international expansion. Under the new ownership, Büter Group will continue to operate independently.

Regarding the sale of the Dutch entities, the international law firm Houthoff acted on ADVANT Beiten's recommendation. Taurus Corporate was involved as an M&A advisor. The acquisition is still subject to the usual regulatory and antitrust approvals. The parties have agreed not to disclose the transaction volume. 

Advisors to the shareholders of Büter Group:
ADVANT Beiten: Dr Guido Krüger (Corporate Succession/Taxes), Prof Dr Hans-Josef Vogel (M&A, both lead partners), Julian Krause (Corporate Succession/M&A), Dr Magdalena Rindermann-Haugwitz (Corporate/M&A), Volker Küpper (Taxes), Thomas Herten (Real Estate), Dr Andreas Imping, Anna Kubitz (both Labour Law, all Dusseldorf), Christoph Heinrich (Antitrust Law, Munich) and Maximilian Steffen (Taxes, Hamburg).

PR
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

ADVANT Beiten's interdisciplinary team supported Zoot throughout the entire acquisition process - from the legal and tax due diligence to the structuring and negotiation of the transaction agreements through to the successful closing.

Zoot Sports was founded in 1983 in Kona, Hawaii - the birthplace of the Iron Man triathlon. The company specializes in innovative clothing, shoes and equipment for triathletes and endurance athletes and is one of the world's leading brands in this segment. Zoot stands for technical precision, high quality and athlete orientation and sells its products in over 25 countries. Since 2023, Zoot has been part of the Italian MVC Group, an international sporting goods company based in Italy.

Tailwind Brands is a company based in Bönen, which specializes in the distribution and brand management of premium sports and lifestyle brands. The company has an established distribution network in the DACH region as well as long-standing partnerships with leading sports retailers and online platforms. Tailwind has made a name for itself as a competent partner for the development and expansion of international brands in the European market.

With the acquisition of Tailwind Brands, Zoot Sports is laying the foundation for accelerated expansion in Europe. The combination of Zoot's international brand strength with Tailwind's regional market and sales expertise offers considerable growth potential in the coming years.

Advisor Zoot Sports:
ADVANT Beiten: Dr Markus Ley (Corporate/M&A, Munich), Dr. Erik Schmid, Virginia Mäurer (both Employment Law, Munich), Susanne Klein, Jason Komninos (both IP/IT, Frankfurt), Markus Linnartz (Tax, Dusseldorf), Petra Fendt (Banking & Finance, Munich), Anja Fischer (Real Estate, Munich).

Public Relations
Frauke Reuther
Communications Manager
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

In addition, six colleagues were elected Local Partners and nine colleagues were elected Salary Partners. The newly elected partners are from all six German offices of the law firm, working in seven different areas of competence.

Dr Florian Weichselgärtner handles a large number of liability cases every year, both in the area of manager liability and the liability of lawyers, tax advisors, insolvency administrators, corporate and restructuring advisors and auditors. His area of activity further comprises advice to companies on the processing of liability cases and compliance violations. The interdisciplinary advisory service of ADVANT Beiten enables Dr Florian Weichselgärtner to comprehensively handle the often complex liability cases across all legal areas (tax law, criminal law, labour law, capital market law, insolvency law, etc.). Due to his many years of advisory practice, he has proven experience both in conducting and defending actions for damages as well as in out-of-court dispute resolution.

These are our new Local Partners in alphabetical order:

• Sascha Opheys (Public Sector, Dusseldorf)
• Max Stanko (Public Sector, Berlin)
• Dr Philipp Sahm (Corporate/M&A, Frankfurt)
• Haide Spanier (Banking, Finance & Restructuring, Frankfurt)
• Mark Thönißen (Corporate/M&A, Frankfurt)
• Dr Mark Zimmer (Labour Law, Munich)

Our newly elected Salary Partners are listed in alphabetical order:

• Regina Dietel (Labour Law, Munich)
• Gamze Dogan (Tax Law, Dusseldorf)
• Verena Nader (Real Estate, Munich)
• Dr Christian Osbahr (Corporate/M&A, Freiburg)
• Robert Schmid (Corporate/M&A, Berlin)
• Simon Schuler (Corporate/M&A, Freiburg)
• Etienne Sprösser (Corporate/M&A, Freiburg)
• Maximilian Steffen (Tax Law, Hamburg)
• Ulrike Stöhr (Tax Law, Munich)

"The appointment of our new partners shows how closely we work together across offices and between our practice groups - supported by diverse industry expertise," explains Dr Guido Krüger, Managing Partner of ADVANT Beiten, adding: "The fact that we have had successful elections at all three seniority levels underlines the continuous development of outstanding talent in our firm. Accompanying our colleagues on their path to partnership is one of our central tasks."

ADVANT Beiten also continues to follow its strategy of targeted growth by lateral hires in selected areas. The following Local and Salary Partners reinforced the firm last year:

• Tanja Ehls (SP, Public Sector, Frankfurt)
• Julian Gruß (SP, Real Estate, Dusseldorf)
• Peter Meisenbacher (SP, Public Sector, Freiburg)
• Ansgar Messow (LP, Real Estate, Dusseldorf)
• Johannes Voß-Lünemann (SP, Public Sector, Berlin)

PR
Frauke Reuther
Manager Communication
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

As part of the restructuring, the company structure was streamlined through a total of four mergers. In doing so, Medizinisches Versorgungszentrum (MVZ) was merged with Poliklinik Ernst von Bergmann GmbH. On the other hand, Innovation-Transfer-Gesellschaft mbH, Diagnostik GmbH and Servicegesellschaft were directly incorporated into Klinikum Ernst von Bergmann gGmbH. Thus, Ernst-von-Bergmann-Gruppe has successfully reduced the number of its subsidiaries from 15 subsidiaries to eleven strong units. 

Ernst-von-Bergmann-Gruppe with more than 4,500 employees is currently undergoing a comprehensive reorganisation process. The corporate restructuring in the form of the mergers carried out is a fundamental component in this context to simplify the structures, to organise processes more efficiently and to strengthen the ability of Ernst-von-Bergmann-Gruppe to act in the increasingly complex health market.

Advisors to Klinikum Ernst von Bergmann gGmbH:

ADVANT Beiten: Dr Karl-Dieter Müller (Lead Partner), Benjamin Knorr, Robert Schmid, Dr Thomas Jilg (all Corporate/M&A, Berlin), Dr Silke Dulle (Medical Law), Wolf J. Reuter, Dr Martin Kalf, Marie von Hammerstein, Lisa Brix (all Labour Law, Berlin), Helmut König (Tax, Dusseldorf).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Laumann Group, a family-owned group with headquarters in Sendenhorst in the Northwest of Germany, is a leading provider of building-related product solutions and IT-services. The Group's range of services extends from PVC profiles for windows and doors ("VEKA" and "GEALAN"), aluminium profiles, PVC panel and façade solutions to surface technology and IT consulting. It generates annual sales of EUR 1.6 billion.

Epwin Group is listed on the London Stock Exchange and generates annual sales of over EUR 380 million. The company is a leading British manufacturer of PVC and aluminium profiles for windows and doors, finished windows and doors, façade systems, decking and GRP building products. Apart from that, Epwin Group is also active in the trading and recycling of building materials.

The merger control workstream of the transaction is being led by ADVANT Beiten Partner Christoph Heinrich who is coordinating the proceedings with the UK Competition and Markets Authority (CMA) in collaboration with Euclid Law (London). ADVANT Beiten is also advising on the future integration of the target business into Laumann Group.

ADVANT Beiten regularly advises Laumann Group and its subsidiaries, such as on the acquisition of the aluminium system manufacturer Procural in 2023 and the façade specialist Vinylit in 2021.

Advisors to Laumann Group:
ADVANT Beiten: Christoph Heinrich (Munich, Antitrust Law), Dr Guido Krüger (Dusseldorf, Tax Law), Dr Christian Ulrich Wolf (Hamburg, Corporate Law)
Euclid Law: Oliver Bretz, Becket McGrath (both London, Antitrust Law)
Osborne Clarke: Jonathan King, Ed Nisbeth, Stuart Miller, Oliver Woods, Tim Rouse, Dominic Ross (all London, Corporate & Finance), Olexiy Oleshchuk (Munich, Finance)
Inhouse: Björn Baltes, Raphael Nießen

Advisors to Epwin Group: 
Eversheds Sutherland UK (Corporate)

Public Relations
Frauke Reuther
Communications Manager
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Christoph Heinrich
Rechtsanwalt 
ADVANT Beiten
+49 (89) 35065 - 1332
Christoph.Heinrich@advant-beiten.com

ApoBank and the AXA Insurance Group have been cooperating in the sale of financial and insurance products for more than 25 years. Both companies now want to bundle the sales activities of their mobile sales companies apoFinanz and Deutsche Ärzte Finanz more closely. 

As part of the restructuring, apoFinanz will be merged with Deutsche Ärzte Finanz. At the same time, apoBank acquires additional shares in Deutsche Ärzte Finanz. The merger creates the largest financial sales organisation for academic health professionals in Germany. With around 500 independent financial advisors, the new company will serve more than 320,000 customers. The merger will be completed in August 2025. A cross-office team from ADVANT Beiten is providing apoBank with comprehensive legal advice.

With more than half a million customers and total assets of around EUR 52 billion, apoBank is the largest cooperative retail bank in Germany and the number one financial services provider in the healthcare sector. Its customers are primarily members of the healthcare professions, their professional organisations and associations, healthcare facilities and companies in the healthcare market.

With the reorganisation of their joint sales subsidiaries, the partners want to combine the strengths of the companies and use the synergies for additional growth. 

Advisors to apoBank: 

ADVANT Beiten: Heinrich Meyer, Rainer Süßmann (both lead partners in charge, Banking/Finance, Frankfurt), Dr Christian Ulrich Wolf, Maren Dedert (both Corporate/M&A, Hamburg), Christoph Heinrich, Prof Dr Christian Heinichen (both Antitrust Law, Munich), Oliver Korte, Christopher D. Harten (both Commercial, Hamburg), Dr Thomas Drosdeck, Dr Gerald Müller-Machwirth (both Labour Law), Susanne Klein, Lennart Kriebel and Daniel Trunk (all IT- and Data protection Law, all Frankfurt)

Advisor to AXA: Hengeler Mueller

Public Relations
Frauke Reuther
Communications Manager
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Heinrich Meyer
Rechtsanwalt 
ADVANT Beiten
Phone: +49 69 756095-414
heinrich.meyer@advant-beiten.com

Banyan Software was founded in 2016 and regularly acquires growing software companies with the aim of developing them over the long term as part of a buy-and-hold strategy. Banyan Software has offices in Canada, the UK and the DACH region.

Headquartered in Munich, Germany, star/trac is specialised in optimizing complex yard management operations. Its innovative solutions significantly enhance operational efficiency, reduce truck waiting times, and ensure compliance with the stringent safety and regulatory standards.

ADVANT Beiten advises Banyan Software regularly on the implementation of its growth strategy in the DACH region, most recently in January 2025 on the acquisition of FoxInsights.

Advisor Banyan Software:
ADVANT Beiten: Christian Burmeister (Lead), Damien Heinrich, Julius Bauer (all Corporate/M&A), Heiko Wunderlich, Fabian Buker (both Tax), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT), Lelu Li (FDI), Alexander Grässel (Labor & Employment Law).

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

1. Facts of the case

In the opinion of the tax authorities in section 13b.11 (2) sentences 2 et seq. of the German VAT Guidelines (UStAE), an entrepreneur who owns a domestic property and rents it out subject to VAT is to be treated as resident in Germany and the transactions are to be declared in the general taxation procedure. A permanent establishment for VAT purposes is therefore assumed. However, the European Court of Justice (ECJ) ruled in the "Titanium" judgment of June 3, 2021 (C-931/19) that the letting of a property without its own staff does not constitute a permanent establishment for VAT purposes.

According to the German tax authorities, the entrepreneur based abroad must register for VAT in Germany, issue invoices to the tenant with German VAT and declare VAT and input tax to be offset in the general taxation procedure.

Under EU law, rents subject to VAT are subject to the tax liability of the service recipient/tenant in accordance with Section 13b of the German VAT law (UStG) and input tax must be refunded via the special input VAT reclaim procedure. For invoices issued with VAT, the issuer/landlord based abroad is liable for VAT in accordance with Section 14c (1) UStG; the tenant is not entitled to deduct input VAT so far.

2. Statement

Currently, there is protection of legitimate expectations vis-à-vis the tax authorities insofar as they must adhere to the administrative instructions. The risk is initially borne by the tenant, who does not declare VAT subject to reverse chare regime, although he would be obliged to do so under EU law. Under EU law, the tenant can still not claim any input VAT deduction from the landlord's invoices. If VAT issues relating to the tenant, which are not necessarily connected to the rental, go to court, these incorrect treatments under EU law may also be at issue, as the court will follow EU law and not the administrative opinion.

The landlord can remedy this by applying for a certificate in accordance with § 13b (7) sentence 5 UStG that the landlord is not treated as a resident abroad/other Community territory. With reference to VAT registration in Germany based on section 13b.11 (2) sentences 2 et seq. UStAE, the tax office of the landlord resident abroad should probably have to issue this certificate.

3. Conclusion

It would be desirable for the legislator to decide to enshrine the administrative opinion in law. Austria already did this in 2022 in response to the Titanium ruling. This can be done, for example, in an addition to Section 13b (6) No. 7 UStG, which states that Section 13b (1)-(5) UStG does not apply to the VATable letting of a domestic property.

In the meantime, to obtain legal certainty, in particular due to the risk for the tenant, the landlord should request a certificate in accordance with § 13b (7) UStG from the tax office responsible for VAT (form USt 1 TS) and present it to the tenant (without being asked).

Jens Müller

Banyan Software was founded in 2016 and regularly acquires growing software companies with the aim of developing them over the long term as part of a buy-and-hold strategy. Banyan Software has offices in Canada, the UK and the DACH region.

FoxInsights, headquartered in Munich, is a spin-off of one of the Top3 Innovation Labs (EnBW Innovation) in Germany. The company offers IoT-based remote tank monitoring solutions. Through digitalisation and data analytics, FoxInsights optimises the sales and ordering process as well as supply chains in the energy, mobility and recycling sectors.

Advisor Banyan Software:
ADVANT Beiten: Christian Burmeister (Lead), Damien Heinrich (both Corporate/M&A), Dr Christian von Wistinghausen, Lelu Li (both Investment Control), Heiko Wunderlich, Fabian Buker (both Tax), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT), Dr Erik Schmid, Alexander Grässel (both Labor & Employment Law).

Public Relations
Frauke Reuther
Manager Communications
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

In the above decision, the Federal Fiscal Court stated that the purchase of a share in a community of heirs (Erbengemeinschaft) does not constitute an acquisition within the meaning of section 23 (1) sentence 1 EStG and therefore does not qualify as a sales transaction subject to taxation. A community of heirs does not constitute a partnership (Personengesellschaft), meaning neither the purchase nor the sale falls under the provisions of section 23 (1) sentence 4 EStG which sets forth that the purchase and sale of shares in partnerships are deemed to be equivalent to the purchase and sale of the proportionate assets. Thus, in practice, it made sense to acquire a co-heir share (Miterbenanteil) instead of an individual asset because such acquisition did not qualify as a private purchase or sales transaction within the meaning of section 23 EStG and was therefore exempt from tax. 

At the recommendation of the German Finance Committee, the legislation recently decided to fill this loophole. Section 23 (1) sentence 4 EStG now does not only mention the partnership but also the community of joint owners. In doing so, the purchase or sales of a share in a community of joint owners has been equated with the purchase and sale of an asset associated with the joint ownership. The consequence is that the speculation period is based on the time when the share in the joint ownership was acquired and that the sale may fall under section 213 EStG.

By means of this reform, the legislation fills the loophole which was often used in practice to avoid speculation periods and, subsequently, the taxation of profits from private sales. This is relevant, in particular, for communities of heirs. The reform has less significance for partnerships under German civil law (GbR), i.e. another form of communities of joint owners, because they were already covered by section 23 (1) sentence 4 EStG as partnerships. 

The newly-amended section 23 (1) sentence 4 applies to all sales where the speculation period has not yet expired.

Teresa Werner
Alexandra Wolter

HECHT Contactlinsen GmbH is the leading manufacturer of custom-made rigid contact lenses in Germany. The company was founded in 1978 and has subsidiaries in Germany, Switzerland and Spain. The company has won multiple awards for its reliability, quality and manufacturing processes.

Novum Capital invests in small and medium-sized companies with annual revenues of up to EUR 200 million on behalf of German and international pension funds, private pension schemes, and endowments. Novum Capital helps its portfolio companies to improve their market position, increase their profitability, enhance the benefits of their business models for society – and increase the value of the companies.

In addition to the comprehensive legal advice provided by ADVANT Beiten under lead partner Gerhard Manz, the law firm Esche Schümann Commichau advised the sellers on tax matters. Löbbecke & Cie. GmbH assisted the seller in the transaction as M&A advisor.

Advisor HECHT Contactlinsen GmbH:

ADVANT Beiten: Gerhard Manz (lead partner), Dr Barbara Mayer, Stephan Strubinger, Damien Heinrich, Dr Christian Osbahr (all Corporate/M&A, Freiburg), Prof Rainer Bierwagen (Brussels), Marcus Mische (Tax) and Dr Andreas Imping (Employment Law, both Dusseldorf).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Gerhard Manz
Rechtsanwalt
ADVANT Beiten
+49 (761) 15 09 84 - 11
gerhard.manz@advant-beiten.com

The introduction of the Business ID will require credit institutions to make necessary adjustments to their Know Your Customer (KYC) processes: In the future, they will have to also collect and record the Business ID for each account holder, each other authorised person and each beneficial owner as defined by the German Anti-Money Laundering Act (Geldwäschegesetz, GwG) to ensure account accuracy in accordance with s154 AO and include it in their reports to the German Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt).

Please find below an overview of how the introduction of the Business ID will affect the KYC process of credit institutions.

The Business ID

With the 'Business Identification Number Regulation' (Wirtschafts-Identifikationsnummer-Verordnung)¹ published in the German Federal Law Gazette on 2 October 2024, the Federal Ministry of Finance (Bundesministerium für Finanzen, BMF) is making use of the power under s139d AO to issue a regulation on the introduction of a Business ID more than twenty years after the legal basis for such ID was created in s139c AO:

As from November 2024, the BZSt will, in several steps and automatically, assign a Business ID to every individual and legal entity doing business in Germany for their unambiguous identification.

The Business ID will be kept for the duration of the entire business activity and will not change. This will also be the case when, e.g., the name or the address changes. The identification number of s139b AO, the tax number and the VAT identification number will remain in place in addition to the Business ID.

Structure of the Business ID

The structure of the Business ID corresponds to that of the German VAT Identification Number (VAT ID). Like the VAT ID, the Business ID consists of the letters 'DE' and nine digits plus a five-digit distinguishing feature for each economic activity, starting with 00001 when first allocated. 

For each additional economic activity, each additional business and each additional permanent establishment of an economically active individual or legal entity, more distinguishing numbers will be assigned to them in consecutive numbering and in the chronological order of data transmission to their competent tax authority as from 1 March 2026.

Example: Business ID initially allocated: DE123456789-00001, and from 1 March 2026, when taking up another economic activity: DE123456789-00002.

Progressive Introduction

As from November 2024, the Business ID will be issued by the BZSt in several steps and without any application process either by public notification or electronically via the ELSTER user account.

Stage 1: In a first stage, individuals and legal entities doing business who have been issued a VAT ID by 30 November 2024 will be assigned a first Business ID with the distinguishing number 00001. It will correspond to the existing VAT ID but will include the additional distinguishing feature. The issuance is expected to start in November 2024 by an announcement in the Federal Tax Gazette (Bundessteuerblatt) and can be found on the BZSt website.

Stage 2: In a second stage, the Business ID is issued to individuals and entities who are registered for VAT purposes or are small entrepreneurs (Kleinunternehmer) as defined in the German VAT Act (Umsatzsteuergesetz, UstG), but who have not been issued a VAT ID by 30 November 2024. In this case, the BZSt will allocate the Business ID electronically via the ELSTER user account as from 1 December 2024.

Stage 3: All other individuals and legal entities doing business will receive their Business ID as from 1 July 2025.

When the Business ID is issued for the first time, it will have the distinguishing number 00001. The allocation of distinguishing numbers for any additional economic activity (00002, 00003, etc.) will not start until 1 March 2026.

Impact on the KYC Process of Credit Institutions

The introduction of the Business ID will require credit institutions to make necessary adjustments to their KYC processes. Since 2018, these have included extensive tax-related KYC obligations in addition to those under anti-money laundering law with regard to account authenticity as set forth in s154 AO. 

Complying with both tax and anti-money laundering KYC obligations continues to be a challenge for many credit institutions due to the different areas of law involved. At the same time, the importance of tax-related KYC obligations and the associated interface issues continues to grow following new legislative initiatives to combat tax evasion and money laundering, such as the new EU anti-money laundering package or the reform(s) of the capital gains tax relief procedure (see: Withholding Tax Relief Modernisation Act (Abzugsteuerentlastungsmodernisierungsgesetz, AbzStEntModG), EU FASTER initiative). Violations are increasingly coming into the focus of supervisory and tax authorities and entail risks under criminal tax law.

Specifically, the following immediate need for action arises:

Pursuant to s93b (1a) AO in conjunction with s24c of the German Banking Act (Kreditwesengesetz, KWG), s154 AO, credit institutions must now also collect and record the Business ID for each account holder, each other authorised person and each beneficial owner and store it in the account retrieval file. In addition, reports to the BZSt must from now on include the Business ID. So far, the statutory transitional provision of s154 (2a) (1) AO applied, according to which the tax number for taxation of income was to be used until the Business ID was issued if the party doing business was not a natural person.

With the allocation of the Business ID as from November 2024, it must now be ensured that the Business ID is collected for new customers in future. The existing KYC processes, reporting channels to the BZSt, documents for customer onboarding and procedural documentation must be adapted appropriately. The same applies to system-based plausibility checks, which must now also include the Business ID.

In the interests of legal clarity and to avoid the threat of significant compliance costs that would otherwise arise, it is to be hoped that an appropriate transitional arrangement will be found, which is currently being discussed as part of the Annual Tax Act 2024.

Martin Seevers
Guido Storck

¹ Regulation on the Issuance of Business Identification Numbers for Tax Purposes (Verordnung zur Vergabe steuerlicher Wirtschafts-Identifikationsnummern, WIdV) dated 30 September 2024, German Federal Law Gazette (Bundesgesetzblatt, BGBl.) 2024 Part I No. 293).

The authors are members of ADVANT Beiten's tax and white-collar crime law department and specialise in the avoidance, support and resolution of tax and criminal law risks in the financial sector.

As a highly specialised unit with many years of industry experience in the financial sector, we combine criminal law competence with tax law expertise and regulatory know-how.

The advisory services focus on tax and white-collar criminal law, anti-financial crime and financial sanctions as well as related compliance issues and the conduct of internal investigations. In addition to preventive advice, we advise and defend clients in tax and white-collar criminal matters and represent companies and individuals in tax and regulatory proceedings before financial and specialised authorities (e.g. BaFin, Bundesbank).

All lawyers in the team are also qualified as Certified AML & Anti-Fraud Officers and have extensive litigation and implementation experience with regard to updating tax and anti-money laundering obligations in the KYC processes of credit institutions.

Amphenol is one of the world’s largest designers, manufacturers and marketers of connectors and interconnect systems, antennas solutions, sensors and high-speed cable.

Luetze International Group is active worldwide and consists of various companies in a holding structure. The group of companies has a tradition of over 60 years in automation and is one of the leading companies in the industry today. Luetze Group offers innovative solutions in the areas of highly flexible cables, cable assemblies, interfaces, power supply and monitoring as well as control cabinet wiring.

Luetze Group's range of services complements Amphenol's portfolio in various segments of the fast-growing electronics market and underlines Amphenol's future-oriented, cross-border positioning.

In this transaction, ADVANT partner firm ADVANT Altana advised on French law, Fox Williams advised on UK law, Havel & Partners advised on Czech law, Kellerhals Carrard advised on Swiss law and E+H advised on Austrian law.

ADVANT regularly advises Amphenol on European M&A projects, most recently ADVANT Altana and ADVANT Beiten jointly advised Amphenol on the acquisition of the CMR Group based in France.

Advisor Amphenol Corporation: ADVANT Beiten: Dr Christian von Wistinghausen, Tassilo Klesen (both lead partners in charge), Olga Prokopyeva (all Corporate/M&A, Berlin), Susanne Rademacher, Lelu Li, Kelly Tang, Dr Jenna Wang-Metzner (all Corporate/M&A, Beijing), Michael Riedel (Labour & Employment, Berlin), Carsten Pütger, Danah El-Ismail (both Real Estate, Berlin), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT/Media, Dusseldorf), Uwe Wellmann (Antitrust Law, Berlin), Christoph Heinrich (Antitrust Law, Munich), Dr Marion Frotscher and Simon Bauer (both Tax, Hamburg).

Advisor Sellers of Luetze Group: Heuking Kühn Lüer Wojtek: Dr. Rainer Herschlein, LL.M., Dr. Emanuel Teichmann (both Corporate/M&A, Stuttgart), Dr. Stefan Bretthauer, Jia-Xi Liu (both Antitrust Law, Hamburg).

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr Joachim Reichenberger, LL.M. has many years of experience in advising on cross-border structures and advises his clients on all questions of tax and corporate social security law. As a special focus of his work, he advises in 
particular on the interface between (wage) tax law and labour and (company) social security law, for which he can rely on his ten years of professional experience as a civil servant at the German Pension Insurance (Deutsche 
Rentenversicherung). A further focus of his work is on providing support in the context of restructurings. Here, in particular, he provides tax and social security law advice on socially responsible staff reduction measures, in which he supports companies in the optimisation of social plans and their subsequent implementation. Moreover, Joachim Reichenberger advises wealthy private individuals (HNWI and UHNWI), including numerous well-known professional athletes, on tax, social security and labour law issues, in particular in the context of moving to or from Germany.

Miriam Misterek advises national and international clients on all issues related to individual and collective labour law as well as on in and out-of-court dispute resolution. She also focuses on tax and social security law advice on socially responsible staff reduction measures.

Alexandra Möller advises on cross-border structuring and on all issues relating to tax and corporate social security law. As a special focus of her work, she advises in particular on the interface between (wage) tax law and labour and (company) social security law. A further focus of her work is on restructuring, in particular advising on socially responsible staff reduction measures, in which she assists companies in the optimisation of social plans and their subsequent implementation. In addition, she provides legal advice to wealthy private individuals.

'We are pleased to have Joachim Reichenberger, another very experienced colleague, on board with his team. His tax expertise, particularly at the interface with social security law with a focus on restructuring, fits perfectly into our cross-location and cross-practice group advisory portfolio,’ comments Dr Guido Krüger, Managing Partner of ADVANT Beiten and adds: ’The expertise of Joachim Reichenberger and his team also complements us excellently in the area of private clients.’

Dr Joachim Reichenberger on his decision: ‘ADVANT Beiten is one of the leading names in the field of tax law and, with its focus, is the ideal platform for us to provide interdisciplinary and cross-border advice. We are very much looking forward to working with our new colleagues and becoming part of this team.’ After ADVANT Beiten strengthened its tax department at the Hamburg office in March of this year with a three-person team led by partner Martin Seevers from EY Law, Heiko Wunderlich joined the Munich office in August. The present arrival of Mr Reichenberger is already the third addition at equity partner level this year 
and underlines the importance of the tax practice group for the firm.

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

The i8, with its timber hybrid construction and LEED Platinum certification, PV system and façade made from recycled aluminium, and more such features, has been designed with sustainable construction in mind.

Advisor to the Interhyp Group:
ADVANT Beiten: Anja Fischer (Real Estate, Munich), Dr Christoph Schmitt (Banking & Finance) and Volker Szpak (Tax, both Frankfurt):

Advisor to R&S Immobilienmanagement:
Noerr: Annette Pospich, Dr Antonio DiMieri (both Real Estate) and Steffen Arlich (Tax, all Munich).

The deal was arranged by BNP Paribas Real Estate GmbH, Christoph Bayreuther.

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

1. Invoice formats in the transition phase

The various possible invoice formats and their treatment during the transition phase are briefly discussed below:

1.1 Paper invoice

From 1.1.2025 with the transitional periods 1.1.2027 and 1.1.2028, paper invoices will no longer be the rule for supplies between VAT-registered businesses based in Germany ("B2B"). However, it remains the rule for invoices to private customers ("B2C") or to VAT entrepreneurs not located in Germany, unless they agree to an electronic invoice.

The decisive factor for the 1.1.2025/27 or 28 deadlines is when the service to be invoiced is deemed to have been "performed". In the case of deliveries, this is generally when the recipient acquires the power of disposal and, in the case of other services, when the service has been completed.

1.2 E-invoice according to structured electronic format

There are two recognized formats according to the CN 16931 standard: (i) X-Rechnung and (ii) ZUGFerD.

X-Rechnung formats are already standard for public contracts ("B2G"). X-invoices are initially not human-readable but are pure xml files, which can be made human-readable with the appropriate IT software.

ZUGFerD is a hybrid format. The xml files are embedded in human-readable PDF/A3 files.

The receipt of these formats must be guaranteed by the invoice recipient for B2B from 1.1.2025. The invoice recipient does not have to agree.

1.3 E-invoice interoperable with a structured electronic format

Other e-invoice formats that allow extraction into the X-invoice or ZUGFerD format are also permitted. However, this requires the consent of the invoice re-cipient.

Extraction is necessary because electronic invoices are to be exchanged in real time with the taxpayer and the tax authorities after the transition phase.

1.4 Other EDI formats not interoperable with structured electronic format

These e-invoice formats are still permitted until 31.12.2027 with the consent of the invoice recipient; after this date, they will no longer be permitted.

1.5 E-invoice in another electronic format (e.g. PDF)

These invoices are permitted until 31.12.2026 with the consent of the invoice recipient. Companies/VAT groups with turnovers within the meaning of the small business regulation (Section 19 (3) German VAT Code “UStG”) of no more than EUR 800 thousand in the 2026 calendar year can still use these formats until 31.12.2027 with the consent of the invoice recipient.

1.6 Invoices for small amounts and tickets

There is no e-invoice obligation for these invoices. Receipt of an e-invoice generally requires the consent of the service recipient.

If the invoice issuer did not issue an e-invoice by mistake, but was obliged to issue an e-invoice, any other invoice issued instead can be corrected by issuing an correct e-invoice in accordance with Section 15.2a (7) UStAE. The correcting e-invoice must express this in a clear reference to the original other invoice. Subject to the other re-quirements, the correction is effective back to the date of issue of the other invoice, even if the input VAT deduction is not permitted in accordance with para. 47 of the BMF-draft (para. 48 of the BMF draft).

2. Consent of the invoice recipient

The recipient's consent to the issue of an invoice in a different electronic format does not require any special form. Consent can be given in the general terms and condi-tions or concluent.

3. Electronic storage obligations

Invoices received electronically must also be stored electronically by VAT entrepre-neurs. A human-readable copy is not sufficient. A VAT audit will use the technical pos-sibilities of electronic evaluation in the future. Extraction into the financial accounting system is not mandatory, but it is recommended.

4. Other comments

If there is no invoice for small amounts (gross amount up to EUR 250), the e-invoice obligation also applies if the entrepreneur makes purchases "at the counter" (e.g.sales at Metro Markets). This also applies, for example, to business meals in a restaurant.

Credit notes are also invoices for VAT purposes and the e-invoicing obligation applies.

5. Conclusion

In future, it will be important for entrepreneurs to differentiate when issuing invoices, at the latest after the transition period:

a) Invoices to other entrepreneurs must be issued electronically.

aa) The X-Rechnung or ZUGFerD formats do not require the consent of the in-voice recipient.

bb) Formats interoperable with the X-Rechnung or ZUGFerD format require the consent of the invoice recipient.

cc) Other electronic formats are no longer permitted.

b) Invoices to (i) non-entrepreneurs, (ii) entrepreneurs for their non-business area, (iii) entrepreneurs not established in Germany (without a VAT permanent estab-lishment) and (iv) small-value invoices and travel documents remain other invoic-es in paper or e.g. as a PDF-document. Service recipients must agree to an e-invoice. This is particularly relevant for supplies of work and other services in connection with a property to non-entrepreneurs, as there is an invoicing obligation under Section 14 (2) No. 1 UStG, but e-invoices would require consent.

Practical tip: It may make sense to send electronic invoices in future that are also human-readable, e.g. with or embedded in a PDF document.

6. Concluding remarks

It is recommended that the introduction of e-invoices be seen as an opportunity to in-crease the efficiency of automated processing in invoicing processes. VAT audits by the tax authorities should also run more efficiently in the future. ADVANT Beiten's tax teams at our 6 offices in Frankfurt, Düsseldorf, Munich, Hamburg, Berlin and Freiburg will be happy to assist you with tax-related questions and the technical implementation of e-invoices.

Jens Müller

From 1.1.2027 at the latest, an entrepreneur is obliged to issue e-invoices to other entrepreneurs, otherwise this is no proper invoice for VAT purposes. Companies with turnover of less than EUR 800 thousand within the meaning of the small business regulation (Section 19 UStG) are only obliged to issue e-invoices from January 1, 2028. For VAT groups, the turnover of the VAT group applies. This means that after the transition period 1.1.2027 or 1.1.2028, only e-invoices will allow input VAT deduction.

The mandatory information on an invoice (Section 14 (4) of the German Value Added Tax Act - UStG) has not changed.

Exempt from the obligation to issue an e-invoice are VAT-exempt services in accordance with § 4 no. 8-29 UStG, invoices for small amounts up to a gross amount of EUR 250 and tickets (§ 34 UStDV). This also affects VAT-exempt property sales (Section 4 no. 9 UStG) and VAT-exempt rents (Section 4 no. 12 UStG). Previously, the entrepreneur was not obliged to issue an invoice in this respect either. This did not and still does not apply if VAT is opted for for VAT-exempt services in accordance with Section 9 UStG. In this case, the obligation to issue e-invoices will apply from 1.1.2027 or 1.1.2028 at the latest.

In future, an e-invoice will only exist if the invoice is issued, transmitted and received in a structured electronic format and enables electronic processing. In future. e-invoices according to German VAT law will therefore no longer be PDF invoices or invoices as text in an email.

For the meaning of structured electronic format and further technical details, please refer to points 4 and 21-30 of the BMF draft letter.

The e-invoice must be machine-readable. Human readability is not required but is optional and recommended.

E-invoices can be sent by email or as a download via a (customer) portal. An e-invoice can be sent multiple times as long as it is the same invoice and the transmission only takes place as a multiple copy with identical content (see Section 14c 1 (4) of the VAT Application Decree - UStAE). Transmission via external memory (e.g. USB-stick) is not possible.

The obligation to issue e-invoices applies to entrepreneurs established in Germany, i.e. companies with their registered office, management or a permanent establishment for VAT purposes in Germany that is involved in the turnover. It should be noted that a permanent establishment for VAT purposes is not necessarily identical to a permanent establishment in accordance with Section 12 of the German General Fiscal Code. According to Section 18.10 (1) sentence 4 UStAE, entrepreneurs who own and rent out property located in Germany are deemed to be established in Germany.¹

The obligation to use e-invoices also applies to invoices for which the recipient is liable for tax (Reverse Charge Mechanism) and for small business invoices (Section 19 UStG). The obligation also applies if the service recipient is a small business or only carries out tax-free transactions. This means that pure residential landlords with VAT-free rental turnover, for example, must also be able to receive e-invoices.

An e-invoice to non-entrepreneurs can only be issued for taxable supplies of work or other services in connection with a property if the recipient of the service agrees. Consent can be given implicitly by acceptance without objection.² However, a paper invoice (in future other invoices) can still be issued in this respect.

Contracts can be regarded as e-invoices if they contain the required information in accordance with § 14 (4) UStG.

E-invoices must also be issued for continuing obligations (long-term rental invoices). For existing rental agreements, electronic long-term rental invoices must be issued by the end of the transition phase from 1.1.2027 or 1.1.2028 at the latest, even if the rental payments have not changed.

The BMF draft letter does not comment on which documents are required if an invoice consists of several documents in accordance with Section 31 (1) of the German VAT Implementation Ordinance (UStDV). The following can be found in paragraph 38:

"If there is an obligation to issue an e-invoice for a continuing obligation (e.g. tenancy), it is sufficient if an e-invoice is issued for the first partial performance period, to which the underlying contract is attached as an annex, or (...)".

It can therefore be assumed that if an invoice document refers to other documents in the text (e.g. real estate purchase agreements or rental agreements), these must also be provided electronically, otherwise there is no complete, proper invoice. Simplification rules are recommended here in future, as a real estate purchase agreement with all attachments, for example, may exceed the electronic reception capacity.

The correction or completion of an e-invoice must also be made in the electronic form prescribed for this (using the corresponding document type). It is not sufficient to transmit the missing or incorrect information in another form. Subject to the other requirements, an effective completion has retroactive effect to the date on which the original e-invoice was issued.

Recommendations

The introduction of e-invoices should mean huge changes in your organization and its proper implementation should be planned at an early stage.

It is recommended that the introduction of e-invoices be seen as an opportunity to increase the efficiency of automated processing in accounting processes.

The ADVANT Beiten tax teams at our 6 locations in Frankfurt, Düsseldorf, Munich, Hamburg, Berlin and Freiburg will be happy to answer your tax-related questions and assist you with the technical implementation of e-invoices.

Jens Müller

^{1 Please refer to the author's blog post from July 20, 2021 for information on the conflict with EU case law: Link}

^{2 An e-invoice with a human-readable attachment is therefore recommended.}

TETEC AG, which specialises in regenerative medicine, had been integrated into the international medical technology group B. Braun through the surgical division Aesculap, based in Tuttlingen, Germany. In future, Aesculap will strategically focus even more strongly on innovative medical technology relating to surgical processes in the operating room, which means that the regenerative medicine business segment no longer fits into the medical technology group's portfolio.

In the United States, B. Braun has partnered with Octane Medical for more than ten years. With the completion of the transaction, the Canadian specialist for regenerative medicine has taken over TETEC completely, including the approximately 160 highly specialised employees at the site in Reutlingen, Germany.

Octane is a global group of companies headquartered in Ontario, Canada, with subsidiaries in the United States and Europe, specialising in innovative processes, biomaterials and bioreactors for regenerative medicine. Part of the group are Octane Clinical Systems, Octane Orthobiologics, Octane Exo, Octane Biotech and Octane Biotherapeutics (BioTx).

B. Braun is one of the world's leading medical technology companies. With over 60,000 employees, B. Braun is a reliable partner that develops intelligent solutions and sets pioneering standards to accelerate progress in healthcare.

Advisors to Aesculap AG:
ADVANT Beiten: Dr Sebastian Weller (lead partner), Nico Frielinghaus, Dr Winfried Richardt, Markus Schönherr, Sarah Heinrichs, Simon Litterst (all Corporate/M&A), Christian Schenk, Markus Linnartz (both Tax), Thomas Herten (Real Estate), Christian Döpke (Data Protection Law, all Dusseldorf), Dr Erik Schmid (Labour Law), Christoph Heinrich (Antitrust Law, both Munich), Rainer Süßmann (Banking & Finance, Frankfurt), Dr Christian von Wistinghausen, Lelu Li (both Foreign Trade Law, Berlin).

Advisor to Octane Medical:
Osborne Clarke

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr Sebastian Weller
Rechtsanwalt
ADVANT Beiten
+49 (211) 51 89 89 - 134
sebastian.weller@advant-beiten.com

Heiko Wunderlich advises companies and private individuals on tax structuring as well as tax procedural and litigation law. His work includes tax advice on succession planning and estate planning for entrepreneurs and private 
individuals as well as company acquisitions, reorganisations and financing. He also advises on international tax law and has special expertise in the media and entertainment sector. Heiko Wunderlich is a tax and inheritance law specialist, a certified corporate succession consultant (zentUma) and a certified executor (AGT).

‘With Heiko Wunderlich, we are very pleased to have won another very experienced and established expert in the market, whose tax expertise, particularly in the areas of succession, restructuring and transactions, is an excellent addition to our advisory portfolio, both at our Munich office and throughout the firm,’ comments Dr Guido Krüger, Managing Partner of ADVANT Beiten.

Heiko Wunderlich comments: 'ADVANT Beiten covers the entire service portfolio in the areas of tax, succession planning and estate planning and thus offers me and my clients an ideal platform. I am very much looking forward to becoming part of the interdisciplinary team of lawyers, tax advisors, auditors and financial experts and to being able to provide client- and future-orientated advice both nationally and internationally.’ 

Heiko Wunderlich is regularly recommended by leading legal handbooks, including The Legal 500 Germany and Handelsblatt in co-operation with Best Lawyers.

In March of this year, ADVANT Beiten strengthened its tax practice in Hamburg with a three-man team led by Partner Martin Seevers from EY Law. 

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com
 

You can view the article, which appeared in the Yearbook Perspectives 2024 of the Association of Foreign Banks in Germany, at this link or in the download area. 

The provisions apply exclusively to B2B sales within Germany, including sales by commercial legal entities governed by public law.

A ‘genuine’ e-invoice is an electronic invoice that complies with the requirements of Directive 2014/55/EU – and thus with the CEN 19631 standard (also known as X-invoice) – or that has an e-invoice format agreed on by the issuer and the recipient of the invoice and ensures the correct and complete extraction of the information required under Directive 2014/55/EU or that is interoperable with it.

The active consent of the invoice recipient to receive the e-invoice is no longer necessary. The e-invoicing obligation does not apply to invoices for small amounts (s33 of the German VAT Implementation Regulation (UStDV)) and invoices for travel tickets (s34 UStDV).

As of 1 January 2025, businesses will initially be obliged to just receive e-invoices. A general obligation to issue e-invoices will only apply as from 1 January 2027. Businesses in Germany with a total turnover of EUR 800,000 or less in the previous calendar year will still be exempt from the obligation to issue e-invoices in 2027. In addition, EDI invoices may continue to be issued in 2027 with the consent of the invoice recipient. Beyond that date, EDI invoices may only be used if they are compatible with the CEN standard and both parties have agreed to using them.

Conclusion

Paper invoices, invoices sent electronically and incompatible e-invoice formats will hopefully be a thing of the past soon. The change of processes admittedly costs time and money, and during the transition phase, two invoicing systems will have to be operated in parallel. In the long term, however, businesses will benefit from the e-invoicing obligation. By automating invoice processes, businesses can save time and resources as less manual intervention is required. E-invoicing significantly reduces the cost of printing, sending and managing paper invoices. Electronic transmission means that invoices can be processed more quickly, and payments can be accelerated, which improves companies' liquidity. Most invoice issuers will not be affected by the e-invoicing obligation before 2027. However, German businesses will have to entirely switch to receiving e-invoices as from 2025. The earlier the transition takes place, the longer the testing phase will be until even the last companies will have to swich to the new system at the beginning of 2028. Due to the provisions of the ViDA Directive, especially businesses operating across borders should have in place a well-established e-invoicing system because the central element of the cross-border invoicing system proposed by the EU Commission is an e-invoice structured in a standardised data set, which must be transmitted to the tax authorities within a few days of the service being provided as from 2028.

Teresa Werner

The team headed by the Hamburg lawyer and tax advisor is particularly well connected in the financial sector and specialises in representing corporate interests in tax disputes and criminal proceedings as well as vis-à-vis supervisory authorities. It works for several financial institutions in the investigation and defence of cum/ex and cum/cum transactions, regularly advising on tax compliance and tax transparency matters as well as the associated regulatory questions. Internal investigations regarding other criminal offences as well as compliance matters in the context of money laundering prevention and sanctions compliance are also key advisory areas. All lawyers in the team are qualified as Certified AML & Fraud Officers.

Martin Seevers, LL.M. Tax (USA) (55) specialises on preventing, supporting and resolving tax conflicts in the financial sector at the interface of law, tax, compliance and anti-financial crime. He particularly advises on tax and corporate criminal law, anti-financial crime and financial sanctions as well as related compliance issues and internal investigations. He represents companies and individuals in criminal and administrative fine proceedings in and out of court, as well as vis-à-vis financial and other authorities (e.g. BaFin).

Julian Niederlein (36), a licensed tax law specialist, advises particularly on preventing and avoiding conflicts at the interface of tax criminal law and the law of administrative offences. He further specialises on the representation of companies and private individuals in tax dispute and tax procedural law.

Guido Storck, LL.M. Corporate Criminal Law (42) advises banks, insurances and companies on all questions of tax and corporate criminal law, as well as on any related issues that may arise.

"The complexity and increasing regulation of our globalised, digitalised business life mean that private individuals and companies can find themselves facing claims under criminal or administrative proceedings at any time," says Dr Guido Krüger, Co-Managing Partner of ADVANT Beiten, adding: "We are delighted to have Martin Seevers and his team on board as highly experienced experts who are established in the market and can provide comprehensive advice to both companies and private individuals in all areas of corporate and tax criminal law. With the new team in Hamburg, we complement our advisory portfolio perfectly and strengthen our cross-location team across various seniority levels."

Martin Seevers comments: "ADVANT Beiten, with an excellently positioned tax team, a high effectiveness in dispute resolution, corporate criminal law & compliance, as well as a proven track record in legal tech, provides an ideal platform for our tax and corporate criminal law practice. It allows us to not only provide legal advice on comprehensive internal investigations with an international dimension as well as complex compliance matters but also assist our clients with the implementation of necessary compliance measures, from a single source. I am very much looking forward to this new challenge."

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

The property at Thomas-Wimmer-Ring is located in the heart of Munich, a stone's throw away from the Viktualienmarkt, directly on Isartor-Platz. The Optima-Aegidius group of companies, a family business, refurbished the building from the 1980s after acquiring it together with a Munich family office, while retaining its striking design.

Advisor to Consulate General of the Republic of Lithuania:
ADVANT Beiten: Anja Fischer (Real Estate, Munich), Dr. Dietmar O. Reich (Corporate law, international public law and consular relations, Hamburg/Brussels), Volker Szpak (Tax, Frankfurt).

Public Relations
Frauke Reuther
Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Anja Fischer
Rechtsanwältin
ADVANT Beiten
+49 (89) 35065 – 1205
Anja.Fischer@advant-beiten.com

Based on proprietary platform technologies, Ethris has been developing mRNA therapeutics for diseases with inadequate treatment and for regenerative medicine for more than 10 years. The biotechnology company develops highly effective mRNA-based drugs for administration directly into the upper and lower respiratory tract and by intra-muscular injection.

Cipla is India's third-largest pharmaceutical company and South Africa's third-largest generic drug manufacturer. It has a particular focus on drugs and therapies for respiratory diseases. Cipla became internationally known for its production of low-cost HIV medicines. Founded in 1935, Cipla employs about 23,000 people.

ADVANT Beiten has a strong positioning in the healthcare sector and in advising international clients on investments in the German market.

Advisor Cipla Ltd.:
ADVANT Beiten: Christian Hipp (Antitrust), Benjamin Knorr (Corporate/M&A and Tax, both leading advisors, Berlin), Dr Dietmar O. Reich (Antitrust, Hamburg and Brussels), Wolf J. Reuter (Employment, Berlin), Robert Schmid(Corporate/M&A, Berlin), Dr Christian Ulrich Wolf (Corporate/M&A, Hamburg), Christian Hess (IP/IT, Munich).

Advisor Ethris GmbH:
m law group. Munich

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Benjamin Knorr
Rechtsanwalt
ADVANT Beiten
+49 (30) 26471 – 262
benjamin.knorr@advant-beiten.com

Dr Kathrin Bürger, Dr Silke Dulle, Christina Kamppeter, Susanne Klein, Dr Ralf Hafner, Dr Georg Tolksdorf and Dr Sebastian Weller represent five different legal areas and are spread across five locations.

• Dr Kathrin Bürger (Labour Law, Frankfurt and München), Licensed Specialist for Labour Law, advises particularly on collective labour law issues. She assists companies with collective bargaining changes and (in-house) collective bargaining negotiations as well as strike preparation measures. Beyond that, Dr Bürger advises companies on the negotiation with works councils, also as a part of conciliation boards, as well as on all kinds of individual labour law issues.
• Dr Silke Dulle (Corporate/M&A, Berlin), Licensed Specialist for Medical Law, provides legal advice to clients of the healthcare sector, especially in the area of hospitals and health insurance companies. Her legal consultancy covers hospital law, social security and pharmaceutical law, procurement law and corporate law.
• Christina Kamppeter (Labour Law, Munich), Licensed Specialist for Labour Law, advises national and international companies on all aspects of individual and collective labour law, in particular regarding negotiations with works councils and trade unions. One focus of her work is on providing labour law advice on restructurings.
• Susanne Klein (IP/IT/Media, Frankfurt), Licensed Specialist for Information Technology Law, is a renowned expert in data protection law. In addition, she advises her national and international clients in IT and copyright law.
• Dr Ralf Hafner (Litigation & Dispute Resolution, Munich), advises his national and international clients in complex international disputes on dispute resolution out of court and represents them in arbitration and state court proceedings.
• Dr Georg Tolksdorf (Assets/Succession/Foundations, Hamburg) provides legal advice in the area of inheritance and foundation law as well as (tax-optimized) succession planning for private individuals and (family-owned) companies. Another focus of his work is on the execution of (corporate) wills.
• Dr Sebastian Weller (Corporate/M&A, Dusseldorf) focuses on Corporate/M&A as well as Private Equity/Venture Capital, particularly providing legal advice for take-overs, participations and restructuring projects. He provides support on all issues relating to corporate and transformation law as well as corporate compliance.

In addition to the seven new Equity Partners, the following Salary Partners have been appointed Local Partners:

• Dr Anne Dziuba, Labour Law, Munich
• Dr Daniel Fischer, Real Estate, Frankfurt
• Dr Christina Hackbarth, IP/IT/Media, Munich
• Christian Hipp, Antitrust Law, Berlin
• Tanja Hogh Holub, IP/IT/Media, Munich
• Sylvia Jenoh, Tax, Frankfurt
• Dr Klaus Kemen, Real Estate, Berlin
• Dr Markus Ley, Corporate/M&A, Berlin
• Jörn Manhart, Labour Law, Dusseldorf
• Carsten Pütger, Corporate/M&A, Dusseldorf
• Dr Jochen Reuter, Real Estate, Frankfurt
• Dr Winfried Richardt, Corporate/M&A, Dusseldorf
• Dr Florian Weichselgärtner, Dispute Resolution, Munich
• Mathias Zimmer-Goertz, IP/IT/Media, Dusseldorf

Furthermore, the following colleagues successfully continue their career path and have been appointed from  Senior Associates to Salary Partners:

• Annalena Benz, Real Estate, Munich
• Jens Ledermann, Tax, Frankfurt
• Dr Martina Schlamp, Labour Law, Munich

Beyond growth from its own ranks, ADVANT Beiten also continues its course of targeted growth with lateral hires in selected areas and confirms the salary partnership of the following colleagues:

• Christian Burmeister, Corporate/M&A, Freiburg/Berlin
• Dr Moritz Jenne, Corporate/M&A, Freiburg
• Dr Sebastian Kroll, Labour Law, Munich
• Markus P. Linnartz, Tax, Dusseldorf
• Dr Ariane Loof, Labour Law, Berlin
• Dr Michael Matthiessen, Labour Law, Berlin
• Dr Birgit Münchbach, Corporate/M&A, Freiburg
• Kristin Müller-Nedebock, Tax, Hamburg

"All seniority levels are of central importance for the future of our law firm. We are therefore all the more pleased to be able to accompany so many colleagues of different seniority levels, legal areas and locations on their career paths, comments Philipp Cotta, Managing Partner of ADVANT Beiten, and adds: Our modified career track offers all colleagues even more flexibility in their individual career planning and allows us to emphasise our professional expertise across the different levels even more clearly to our clients."

Congratulations to all elected and confirmed partners.

The ruling continues the series of judicial review of the Commission's recent practice of considering tax advantages as aid. On this matter see

• (German) Luxembourg Court upholds Commission's line on targeting selective tax benefits as aid, September 24, 2019,
• (German) Combating tax evasion by looking at the Apple Ireland case, July 15, 2020,
• (German) Legal but unfair? The road to greater tax justice via state aid law remains rocky, May 17, 2021,

The background to the current appeal decision of the ECJ is the adaption of a tax ruling by Luxembourg tax authorities in favuor of FFT. The European Commission determined in its decision of October 21, 2015 that the tax ruling constituted state aid incompatible with the internal market within the meaning of Article 107 TFEU and in violation of the implementation prohibition under Article 108 (3) TFEU. In its judgment of September 24, 2019, the EGC confirmed the Commission decision. However, FFT now successfully sought the annulment of this judgment and the annulment of the Commission decision.

In its decision, the ECJ once again emphasized that a national measure constitutes State aid under four conditions: First, the measure must originate from a State or use State resources. Second, the measure must be found to affect trade between Member States. Third, the beneficiary must obtain a selective advantage through the measure, and fourth, it must distort or threaten to distort competition.

For the third condition relating to selective advantage, it is the Commission's task to first determine the relevant reference system. Given the fiscal autonomy of the Member States, this is to be understood as the tax regulations under national law. The Commission must then show that the measure in question derogates from the reference system by distinguishing between economic operators who are in a comparable factual and legal situation with regard to the objective pursued by the reference system. It must also show that this distinction cannot be justified by the nature or general scheme of the reference system.

Advocate General Pikamäe found that the Commission decision and the judgment of the EGC were lawful, but the ECJ did not agree with this view. It ruled that the Commission had erred in its examination by applying an incorrect arm's length principle outside the concretely applicable Luxembourg tax law.

On the one hand, the ECJ confirms the Commission's approach against selective tax advantages as State aid; on the other hand, the ruling shows that the ECJ examines the reasoning of the European Commission as well as of the EGC with meticulous care. The determination of a tax advantage as State aid may have become more difficult in cases comparable to the Fiat case, but it cannot be ruled out.

Prof. Dr Rainer Bierwagen
Dr Dietmar O. Reich

The ADVANT Beiten team around lead partner Dr Sebastian Weller provided full support for the complex transaction across practice groups and offices: from the preparation and structuring of the transaction (including due diligence), to the negotiation, implementation and closing of the transaction including antitrust notification.

Medline is a leading global healthcare company that manufactures and distributes high-quality medical and surgical products. Medline Europe was founded in 2011 and operates branches, as well as production and distribution centres throughout Europe.

Asid Bonz is a leading supplier to clinics and hospitals in Germany, offering high-quality products for surgery, anaesthesia, ward care and urology. Asid Bonz was founded in 1811 and is known worldwide for having developed the first anaesthetic ether. In 2021, Asid Bonz achieved a turnover of more than 30 million euros and supplied more than 1,100 hospitals in Germany.

With similar business models and excellent customer service, the two companies are an excellent strategic fit. In the future, Medline will make the Asid Bonz brand available to its broad European customer base outside of Germany. Within Germany, Asid Bonz sales representatives will have access to selected Medline products to further expand their partnership with customers.

Advisor to Medline International B.V.:
ADVANT Beiten: Dr Sebastian Weller (Corporate/M&A, in charge), Nico Frielinghaus (Corporate/M&A), Dr Tassilo Klesen (Corporate/Commercial), Markus Schönherr (Corporate/M&aA), Dr Patrick Hübner (Investment Control), Peter Weck (Labour Law), Dr Andrea Pomana (Antitrust), Christoph Heinrich (Antitrust), Marco Mirceta (Antitrust), Mathias Zimmer-Goertz (IP), Christian Döpke (Data Protection), Dr Marion Frotscher (Tax), Simon Bauer (Tax), Katrin Lüdtke (Public Law), Sascha Opheys (Subsidies).

Advisor to Medi-Globe Europe:
White & Case: Dr Stefan Koch, lead partner

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
Frauke.Reuther@advant-beiten.com

Dr Sebastian Weller
Lawyer
ADVANT Beiten
+49 (211) 51 89 89 - 134
Sebastian.Weller@advant-beiten.com

Changes to the Controlled Foreign Companies-Regulations through the ATAD Implementation Act

After the legislator failed to implement the ATAD Directive (Anti-Tax Avoidance Directive) into national law in time by the end of 2019, this has now been done with the ATAD Implementa-tion Act of 30 June 2021.

The ATAD Implementation Act will only result in a few changes to the previously applicable legal situation in the area of the taxation of Controlled Foreign Companies ("CFC"). This is due to the fact that far-reaching regulations already exist in Germany through the national laws on CFCs in the Foreign Tax Act (Außensteuergesetz, AStG).

One major change is the switch to a shareholder-based approach. The decisive criterion is the control of an intermediate company. According to Section 7 Para. 2 German Foreign Tax Act, this is now the case if, at the end of the respective financial year of the foreign company, more than half of the shares in the nominal capital are directly or indirectly attributable to the taxpayer alone or together with persons closely associated with him, or if he is directly or indirectly entitled to more than half of the profits or liquidation proceeds. In this context, the associated persons do not have to be domestic residents. The legislator thus abandons the concept of national control. The risk of accidental or even unknown national control will thus be avoided in the future.

The decision of the legislator to define a catalogue of active income instead of passive income in Section 8 AStG contrary to the ATAD, remains unchanged. The catalogue was, however, partially revised. Among other things, interest is now always to be regarded as passive income. The regulation on dividends, which had formerly been clearly laid out, was also revised. Previously, all profit distributions by corporations were considered as active income without exception. Now, only certain intercompany dividends qualify as active income. The tax rate of 25%, which is the threshold for a "low taxation", has, however, remained unchanged.

The new legal situation also entails a change in the exemption limit for mixed income (Section 9 AStG). To begin with, the revenue, instead of the gross income, is now the relevant factor. In addition, the threshold of EUR 80,000 per company has been eliminated.

The relevant point in time for attributing CFC-income to the taxpayer has also changed. Whereas under the old law, pursuant to Section 10 Para. 2 Sen. 1 AStG, the CFC-income was deemed to be attributed immediately after the end of the relevant financial year of the foreign company, under the new law it is deemed to be attributed in the assessment period in which the relevant financial year of the foreign company ends.

The new provisions are generally to be applied for the first time for the assessment periods for which CFC-income is to be attributed resulting from a financial year of the intermediate company or permanent establishment that begins after 31 December 2021.

Relevance in practice

As mentioned above, though the ATAD Implementation Act only results in a few changes to the applicable legal situation, these must be taken into account in tax planning. This applies in particular with regard to the changes to the active income catalogue in Section 8 AStG with respect to profit distributions by corporations. There is an acute need for action here in the case of free float shares, as these are no longer covered by the new active income catalogue. Particularly due to the far-reaching changes made by the ATAD in the other areas, the changes regarding the CFC-rules must not be neglected.

Dr Marion Frotscher
Simon Bauer

ATAD Implementation Act and the Exit Taxation according to Section 6 German Foreign Tax Act (Außensteuergesetz, AStG)

Due to the ATAD Implementation Act, the so-called exit taxation according to section 6 AStG has been subject to some significant changes.

The group of taxpayers who may be subject to exit tax has been modified. In the past, an unlimited tax liability in Germany of at least ten years was required. From now on, taxpayers who have been subject to unlimited tax liability in Germany for at least seven years within a period of twelve years are subject to the exit taxation.

As before, taxpayers are subject to exit taxation if they hold shares of at least 1% in domestic or foreign corporations. But caution is needed: In case a partnership has opted for the taxation of corporations through the German Act for Modernisation of the Income Tax Act (Körper-schaftsteuerrecht-Modernisierungsgesetz, KöMOG) the partnership would also be subject to exit taxation.

Even after the reform of section 6 AStG, the most frequent cause of the exit taxation is the exit/move of the individual to abroad. In addition, however, the transfer of a significant participation without a payment to persons not subject to unlimited tax liability leads exit taxation. Also, the exclusion or restriction of German tax law causes exit taxation.
The assessed tax can be deferred at the taxpayer's application so that the tax can be paid in seven equal annual instalments. Basically, the tax office will require a security deposit for this. Whereas in the old regulation a distinction was made between departures to an EU/EEA country and those to a third country, the deferral regulation (Stundungsregelung) now applies in any case. As a result, the regulation of indefinite deferral without security deposit for the exit to an EU/EEA country will not be applicable anymore.

Due to the ATAD Implementation Act the so-called return regulation was also adjusted. According to the return regulation, the tax claim generally lapses if the taxpayer re-establishes a residence in Germany within seven years and becomes subject to unlimited tax liability again. In the past, this time limit was only five years. The time limit can be extended to a maximum of twelve years if the "intention to return" persists. What at first glance appears to be a relief, however, turns out to be a disadvantage for those who have moved to an EU/EEA country: Under the previous regulation, these taxpayers could return without any time limit.

The new regulations will apply as of the 2022 assessment period.

Relevance in practice

The ATAD Implementation Act has also modified and restructured the rules on exit taxation. In contrast to exits to a third country, the new regulation entails disadvantages in case of an exit to an EU/EEA country. This should be considered when planning an exit out of Germany.

Dr Marion Frotscher
Maximilian Steffen

In the following first part of our three-part series on the ATAD Implementation Act, we look at the new rules for avoiding taxation mismatches in relation to hybrid arrangements.

The new section 4k German Income Tax Act (Einkommensteuergesetz, EStG) shall avoid the deduction of business expenses in case of hybrid structures between related parties or between persons "with coordinated behavior". The idea is to avoid structures in which it comes to a double deduction of business expenses or a deduction without taxation of corresponding business income. The regulations are structured as a treaty override, so that double taxation treaties do not have to be observed. The application of these regulations is mandatory for all expenses incurred after 31 December 2019. Expenses that were legally incurred before 31 December 2019 may be assumed to have been incurred after 31 December 2019 under certain conditions.

In detail, the following cases are covered:

Section 4k (1) EStG covers operating expenses in connection with hybrid financial instruments (forms of lending) and from the transfer of capital assets. In case the income (corresponding to the business expenses) is not taxed in the other state or is taxed at a lower rate than in Germany, a deduction of business expenses will be not permitted. This may be the case, for instance, if income is qualified as non-taxable dividends abroad, but can be deducted as interest expense in Germany. Provided that the mismatches are eliminated in future taxation periods and the at arm's length principle (Fremdvergleichsgrundsatz) has been considered a deduction should be possible.

Section 4k (2) EStG extends the restriction to payments from services (e.g., interest, rent and license payments, etc.) which are not taxed in the state of the service recipient due to different qualification of the services or the legal entities involved (only non-taxation, not low taxation). Such cases can be possible in permanent establishment structures or in the case of different classification of hybrid entities (non-transparent classification in one state and transparent classification in the other state).

A double deduction of operating expenses (e.g., in the case of so-called double-dip structures) is restricted by section 4k (4) EStG. A deduction remains possible if corresponding income is taxed in both states.

Section 4k (5) EStG is intended to prevent the deduction of operating expenses for structures in which the income in the other state is offset by expenses that would not be deductible in Germany under section 4k (1) to (4) EStG if they were incurred in Germany. Such constellations may be possible in the case of multi-level financing structures with the use of hybrid financial instruments, in which, for instance, the interest payments and interest income at the individual levels usually balance out, but at the top level, for instance, there is no taxation of the interest income due to a hybrid financial instrument.

Relevance in practice

Entities with cross-border relations (e.g., financing, shareholding or other service agreements) should keep an eye on the regulations of section 4k EStG (applicable retroactively as of 1 January 2020). Such cross-border structures should be also reviewed from a tax perspective to mitigate potential tax risks.

Dr Marion Frotscher
Lukas Vienenkötter

Founded in 2014, the Berlin-based start-up JUNIQE specialises in prints and posters by artists and is excellently positioned in the market. Since its foundation, JUNIQE has received more than 20 million euros in capital from shareholders, including well-known names such as Vorwerk Ventures, High-Tech Gründerfonds and the Cewe Foundation. The founders of JUNIQE leave the operational management but remain closely associated with the company in an advisory capacity. The JUNIQE location in Berlin and the brand will be retained. The number of MYPOSTER employees increases by 70 to 350 with the takeover.

MYPOSTER was founded in 2011 and has experienced rapid growth in recent years. The MYPOSTER group includes the brands myposter, Kartenliebe, ArtPhotoLimited and its own production company Printhouse. The takeover of JUNIQE is MYPOSTER's largest acquisition to date and represents a milestone for the company. MYPOSTER will further develop JUNIQE's business model strategically and innovatively and thus expand it into an even stronger provider in European e-commerce.

Advisors to MYPOSTER:
ADVANT Beiten: Dr Sebastian Weller (in charge, Corporate/M&A/Venture Capital, Dusseldorf), Dr Martin Rappert, Dr Julia Offermanns, Nico Frielinghaus, Dr Winfried Richardt, Markus Schönherr (all Corporate/M&A, alle Dusseldorf), Tassilo Klesen (Corporate/Commercial, Berlin), Wilken Beckering (Corporate/Commercial, Dusseldorf), Lelu Li (Commercial, Berlin), Thomas Herten (Real Estate, Dusseldorf), Peter Weck (Labour Law, Dusseldorf), Christoph Heinrich (Antitrust, Munich), Mathias Zimmer-Goertz (IP, Dusseldorf), Christian Döpke (Data protection, Dusseldorf), Helmut König (Tax, Dusseldorf), Jan Christian Mohrmann (Tax, Frankfurt), Dennis Grimmer, Vivienne Sulek (both Financial Due Diligence, both Dusseldorf).

Advisors to JUNIQE: Osborne Clarke (Nicolas Gabrysch, Alexandra Nautsch)

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr. Sebastian Weller
Lawyer
ADVANT Beiten
+49 (211) 51 89 89 -134
Sebastian.Weller@advant-beiten.com

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Final assessment for interest periods until 31 December 2018, suspension and prelimi-nary assessments for periods beginning 1 January 2019

In its decision the Federal Constitutional Court had decided for the continuing application of the old regulations for interest periods until 31 December 2018 despite its unconstitutionality. The ruling therefore only required action by the fiscal administration for interest periods beginning 1 January 2019. In accordance with the requirements of the Federal Constitutional Court, the Federal Ministry of Finance divides its guidance into interest periods up to 31 December 2018 and from 1 January 2019.

First-time assessments of interest for tax claims and tax refunds pursuant to section 233a of the German Fiscal Code (AO) will be suspended for interest periods beginning 1 January 2019 and thus not be assessed. As soon as the legislator issues new legislation with a retroactive effect, the interest will be assessed. Final assessments will be issued for interest periods until 31 December 2018. In this regard the interest rate ruled unconstitutional by the court will still be applied.

Regarding amendments and corrections of interest assessments the same principles shall apply. Interest assessments subject to review for interest periods beginning 1 January 2019 will be suspended and only assessed provisionally. For interest periods until 31 December 2018 the interest assessments will be declared as final. Beyond this it is noteworthy that regarding all interest assessments which are already incontestable, the assessment will also be final even if the interest assessments relate to interest periods after 1 January 2019 and therefore the old interest rate will apply. However, the interest for periods after 1 January 2019 will not be enforced if not paid. It is important to note that relevant in this regard is only the interest period and not the assessment period for which the tax arises.

Consequently, the same principles also apply in cases of appeals. Appeals regarding the level of interest for periods until 31 December 2019 are to be rejected as unjustified. For interest periods from 1 January 2019 the appeal process and the enforcement is to be suspended until new legislation is passed.

Practical Implications

As expected, the Federal Ministry of Finance has implemented the implications of the ruling by the Federal Constitutional Court accordingly. Consequently, most taxpayers will not profit from the ruling as the interest on tax claims remains unchanged for interest periods until 31 December 2018. However, interest on tax refunds does also not need to be paid back for this period. It remains to be seen, what kind of solution the legislator will opt for regarding the interest for the future. Until the new legislation is in place, the uncertainty for taxpayers will remain in any case even despite the letter of guidance.

Dr Marion Frotscher
Simon Bauer

Incompatibility with the Constitution for interest periods from 2014 onwards, inapplicability, however, only as of 2019

According to German tax law, tax claims and tax refunds carry an interest rate of 0.5% per month, beginning after an interest free period of 15 months after the tax arises. The relevant article of the German Fiscal Code (Art. 233a German Fiscal Code) had originally been introduced by the Tax Reform Act of 1990 and aimed at achieving an equal burden for taxpayers, independently of the point in time the tax is finally assessed and due. Accordingly, a fixed interest rate based on the market interest rate was established.

Due to the continuing phase of low interest following the financial crisis of 2008, the Federal Constitutional court now ruled the interest rate of 0.5% per month unconstitutional for interest periods beginning 1 January 2014. The court argued that it had proven unrealistic to achieve this interest rate on the market from 2014 onwards due to the changes in the economic circumstances. For the time until 2014 the court, however, ruled the interest rate to be constitutional.

The current laws, however, remain applicable for interest periods up to and including the year 2018. The court argues that applying new legislation retroactively for interest periods as of 1 January 2014 until 31 December 2018 would give rise to significant budgetary uncertainties. For the interest periods starting 2019 the court, however, ordered the inapplicability of the interest rate, arguing that the risks for reliable financial and budgetary planning by Federal and State governments as well as municipalities for periods following 2018 would be much smaller. The court obliged the legislator to adopt a constitutional new regulation by 31 July 2022.

It must be pointed out that the decision by the court does not affect other interest rates stipulated under the German Fiscal Act such as, for instance, deferral interest, tax evasion interest, suspension interest. Regarding these types of interest, a separate constitutional assessment is necessary as these types of interest are the result of an application or conscious acting of the taxpayer. They are also not only aiming at counterbalancing any interest advantages or disadvantages but also have a steering role.

Implications of the ruling

In practice, the court's decision has substantial implications, as in the context of tax audits, a lot of time often passes until the final assessment of the tax is issued. As for the assessment period 2019 this the start of the interest period has been postponed due to the Corona-pandemic this is not an issue for the 2019 tax returns. The Federal Constitutional Court has made it explicitly clear that it is not its task to decide on the type of interest rate or how high the interest rate should be.

Therefore, it remains to be seen what type of interest and which interest rate the legislator will decide on after the upcoming federal election.

Dr. Marion Frotscher
Simon Bauer

Key facts

With its letter of guidance dated 11 February 2021 the Federal Ministry of Finance (FMoF), under very strict circumstances, allowed for a temporary simplified approach regarding the withholding tax on licensing of IP registered in Germany. This simplified approach, until now, only applied if the remuneration is received by 30 September 2021.

With its newest letter of guidance dated 14 July 2021 the FMoF extends the application of this simplified approach to remuneration received until 1 July 2022. The application for the exemption from the withholding tax needs to be filed with the Federal Central Tax Office until 30 June 2022 in all cases.

Practical Implications

Generally, the extension of the simplified approach is to be welcomed. However, the FMoF fails to address the many questions having surfaced with the publication of the letter of guidance in February. This leads to a perpetuation of the uncertainties regarding the taxation of IP registered in Germany.

Dr Marion Frotscher and Simon Bauer

Foreign propcos holding a property in Germany and renting it out generally try to avoid founding a permanent establishment for income tax purposes in order to avoid becoming liable for trade tax. In this respect the definition of a permanent establishment as per § 12 of the German Fiscal Code applies. However, a permanent establishment for VAT purposes does not have to be in line with a permanent establishment for income tax purposes. In case of a permanent establishment for VAT purposes the definition of a “fix establishment” of the superior ranking EU law applies (Art. 44 and 45 of MwStystRL as well as Art 11 MwStVO).

For foreign propcos the situs principle applies for the definition of the place of the letting activity independent from the question if a permanent establishment is in place. Thus, the services of letting a property located in Germany are taxable for VAT purposes in Germany and – in case of an admissible option for VAT- also subject to VAT. However, the existence of a permanent establishment for VAT purposes has a significant impact on the VAT procedure. So, without a permanent establishment for VAT purposes the reverse charge mechanism needs to be applied for the vatable rents and the input VAT needs to be reclaimed in the special VAT reclaim procedure. The general taxation procedure for VAT is not applicable anymore.

Sofar the tax authorities generally assumed the existence of a permanent establishment for VAT purposes in case of a property rented out. Section 13b.11 (2) clause 2 and 3 of the German VAT guidelines (UStAE) says: "Entrepreneurs owing a plot located inland and renting it out subject to VAT are to be treated in this respect as domestically resident. They have to disclose this turnover in the course of the general taxation procedure."

Furthermore, it says in section 18.10 clause 4 UStAE:

"Entrepreneurs which own a plot located inland and which rent or intent to rent this plot are to be considered as residents."

Hence, a foreign property company with turnover from letting subject to VAT has to file for a VAT registration in Germany and to file preliminary VAT returns and annual VAT returns. The tax authorities assume in this case that a propco is to be considered as resident in Germany and consequently founds a permanent establishment for VAT purposes.

Now ECJ has decided in a current verdict very clearly that the letting of a property without own personnel “on site” does not represent a fix establishment and consequently does not cause a permanent establishment for VAT purposes (ECJ dated 03 June 2021, C-931/19).

Consequently, this means that foreign propcos with properties located inland are not to be treated as domestic residents if no own personnel is established “on site”. Hence a registration for VAT purposes in the country where the respective property is located would not be possible. This would consequently mean that foreign propcos need to apply for the reverse charge mechanism towards the vatable tenant. However, if the propcos erroneously still charge VAT on their invoices to the tenant it would have to be considered as unjustified disclosure of VAT (in Germany as per § 14c (1) UStG). Hence, the VAT would be owed by the propco but the tenant would not be entitled to input VAT deduction.

A further consequence would be that for the propco an input tax deduction would no longer be possible in the country in which the property is located and that only the complicated special VAT reclaim procedure (“Vorsteuervergütungsverfahren”) would be applicable .

It is not clear yet if the German tax authorities will, based on the ECJ decision, examine and adjust the aforementioned passages of the German VAT guidelines. In any case a protection of trust for the taxation periods until the respective adjustment of the guidelines is required. If such an adjustment is carried out, the foreign propcos need to significantly adapt their processes for the letting of properties subject to VAT.

Jens Müller

Key facts

With its Act on the "Implementation of Reporting Obligations of Cross-Border Arrangements" dated 21 December 2019, Germany has complied with its duty to implement EU Council Directive 2018/822 of 25 May 2018.

After some initial back and forth on an extension of the deadlines regarding the reporting obligations due to the Corona Pandemic, which were finally abandoned, the application of the reporting obligations started as scheduled, on 1 July 2020. The new legislation had already caused heated discussions prior to implementation due to its broad scope.

The letter of guidance by the FMF was eagerly awaited as to shed some light on the administration's interpretation of the new legislation. In the past year the FMF had circulated multiple drafts of the letter of guidance, the latest on 14 July 2020. Now, almost nine months later, the FMF has finally published the final letter of guidance on 29 March 2021. The changes in comparison to the latest draft of 14 July 2020 are, however, in most part of editorial nature. This is also the case with regard to the so called "White List" in the Annex which contains a conclusive listing of cases which are deemed not to constitute a tax benefit as such.

Criticism of the reporting obligations as a bureaucratic monster that is difficult to manage is thus unlikely to abate even after the publication of the FMF letter of guidance.

Practical Implications

The publication of the final letter of guidance only provides for very limited additional insight into the fiscal authorities' perspective in comparison to the last draft circulated on 14 July 2020. However, the publication is nevertheless to be welcomed, as the administration is for now bound by the views stated in the letter and in particular the White List.

Dr. Marion Frotscher

Simon Bauer

In August 2020 the Federal Tax Service of Russia (FTS) issued a letter dedicated to intragroup services. We talked about this letter in detail in a video blog (link) and as a whole assess the underlying message of the supervisory authorities as positive for the development of law enforcement practice. In February 2021 FTS issued another letter[1] where it focussed entirely on demarcating the concepts of intragroup services and shareholder activity.

Crux of the issue

If the expenses assigned to a subsidiary arose in connection with activity conducted solely in the interests of the group’s shareholders (shareholder activity), they do not reduce the taxable income of the subsidiary, as activity conducted in the interests of shareholders is not a service. The Group as a whole incurs financial losses as a result of double taxation as the company assigning the expenses (for example, based in Germany) is taxed on the Russian-source funds received pursuant to the standard procedure, while the expenses are paid in Russia from net profit. The new letter could exacerbate the current situation, as the demarcation of the concepts of intragroup services and shareholder activity proposed by FTS is at variance with international practice, including German practice.

Shareholder activity in international practice

The OECD classifies activity as shareholder activity based on the following criteria. If the activity is necessary because the parent company is required to comply with specific rules in the country of residence (for example, in Germany), inter alia, in relations with its shareholders, then such activity is being performed in the interests of the shareholders. One can cite as examples statutory reporting in the country of the parent company, the performance of mandatory corporate actions, compliance with the rules on the corporate governance of the group as a whole, and others.

In addition, it is customary in international practice to classify activity related to the protection of investments, in other words, the capital invested in Russia, as activity conducted in the interests of the shareholders.

The Federal Tax Service of Russia on shareholder activity

In the recent letter FTS classifies the following types of activity as shareholder activity:

• Designing of the development strategy of the group as a whole or by segments and regions
• Marketing research on goods and services which have still not been launched on the Russian market
• Assessment of the viability, costs and efficiency of investment projects
• Strategic planning and budgeting
• Preparation of the consolidated financial and management reporting
• Internal audit and control
• Organisation of the financing of the group, organisation of the effective use of funds within the group
• Receipt of ratings, interaction with financial institutions
• Drafting and implementation of group standards, methodologies and policies

Such divergence on the issue as to what constitutes activity in the interests of shareholders is bound to lead to tax disputes in Russia and the duplication of the tax burden of international groups with subsidiaries in Russia. FTS holds that the compensation of costs on shareholder activity can be taxed as Russian-source dividends to foreign shareholders.

What needs to be done in the current situation?

Notwithstanding the current unfavourable development for business, international groups should as in the past adhere to the aforementioned criteria to demarcate shareholder activity and intragroup services. FTS’s position may change in the medium to long term due to the influence of court interpretation and the changing policy of the Ministry of Finance.

At the same time, the approach to documenting the expenses being assigned to Russian subsidiaries must be changed.

Based on our many years of experience, it is frequently the case that clients tend not to think through and even treat superficially the documentation required to designate activity, the expenses on which have been assigned to a subsidiary. This is often attributable to miscalculation by management of the legal situation and tax risks in foreign countries. The sporadic documentation or lack of documentation even results in a disallowance of the deductibility of expenses which might be justifiably classified as expenses on intragroup services, and also financial fines for the Russian company.

Contracts on intragroup services must include not simply a list of the types of activity and projects as a whole: such as corporate governance, management, marketing, financial services, reporting and audit, IT, the introduction of policies, standards, etc. The focus should be a detailed description of the functions assumed by the companies providing services and assigning expenses. In addition, the reporting on services rendered must document quantitative data: the scope of the performed work, the time spent, the other resources allocated to this activity.

BEITEN BURKHARDT lawyers and tax advisors would be delighted to assist you with the preparation of the intragroup agreements and necessary documentation to substantiate respective expenses.

Anna Lesova

Read this article in Russian at: LINK

[1] Letter of the Federal Tax Service of Russia from 12 February 2021

Key changes

Prior to the changes made by the Annual Tax Act 2020, relocation to another country was possible only if certain requirements were fulfilled and on submission of an application to the competent tax office. Now, relocation within the EU is conditioned only on the requirement that full access to the data is possible for external tax audits (Außenprüfungen) and cash-register (Kassen-) and VAT-inspections (Umsatzsteuer-Nachschau).

With regard to the relocation to a non-EU country, only small changes were made to the existing law. Therefore, among other things, an application still requires that the location of the data processing system be disclosed to the tax authorities and that taxation must not be impaired due to the relocation. However, in contrast to the written application necessary under the old Act, it is now also possible to file the application electronically. In addition to the accessibility of the data during tax audits, full access to the data now also must be possible for cash-register and VAT-inspections. Overall, however, the changes affecting relocation to non-EU countries are minor.

Practical Implications

The changes in the Act regarding the relocation within the EU benefit the administration as well as companies by reducing unnecessary paperwork. Additionally, it provides companies with more flexibility regarding the relocation of electronic accounting and electronic records.

Dr Marion Frotscher

Simon Bauer

Finally, the Federal Ministry of Finance issued an additional letter of guidance on 11 February 2021, giving some clarity on the handling of this matter in the future.

Federal Ministry of Finance states opinion of limited tax liability regarding IP

On 6 November 2020, the FMoF issued a letter of guidance with respect to a limited tax liability of the licensor in Germany in case of a licensing/transfer of rights registered in a German register. Although the law already exists for a long time, this regulation has been paid little attention to in the past. According to the letter of guidance, there is no need for an additional nexus in Germany beyond the registration in a German register, leading to a tax liability in Germany even in cases of contracts between non-residents, if the agreement (also) touches IP registered in Germany. Under this interpretation an unforeseeable spectrum of contracts would be affected. In cases of licensing agreements, the tax is levied as withholding tax at the level of the licensee.

This letter of guidance sent a shockwave through many companies dealing with IP as it left many questions unanswered, especially what the basis of assessment for such a tax should be and, subsequently, whether or not there was a need to file tax returns for licensing agreements of the past in order to avoid the risk of committing tax fraud.

On 11 February 2021 after the above mentioned back and forth on how to deal with this recent change in opinion by the fiscal authorities, the second letter of guidance was issued, addressing some of the topics:

Temporary simplified approach and guidance on assessment

According to the new letter of guidance it is, under certain circumstances and on application, possible for the licensee to refrain from having to withhold taxes for the licensor and to file a tax return, if the remuneration is received by 30 September 2021 at the latest, granting a temporary simplification of the process. The additional requirements are, however, very strict, e.g. covering only cases in which the licensee is not subject to unlimited tax liability in Germany and the double taxation treaty between Germany and the country of residence of the licensor grants relief of the taxation in Germany. If the requirements are not fulfilled, the tax needs to be withheld and a tax return is to be filed. This also applies to license agreements concluded in the past where the remuneration has already been paid.

In general, the basis of the tax amount to be withheld is the gross remuneration for the licensing of the IP registered in Germany. The remuneration attributed to the IP registered in Germany has to be determined according to the underlying contractual provisions. In case such a determination is not possible, e.g. due to a lack of specifications in the contract, an appropriate allocation of the remuneration needs to be made. The starting point for such an allocation is the total remuneration paid, which then has to be allocated according to its cause. Relevant for the allocation is the total revenue generated by the licensor due to the IP registered in Germany.

However, the fiscal authorities may, in cases where the assessment basis cannot be determined, estimate the share of the remuneration attributable to Germany, based on the revenue generated by the licensee in Germany in comparison to the revenue generated in the other countries.

Practical implications

The new letter of guidance simplifies the process for remuneration paid until 30 September 2021 in some cases, but certainly not all. Under certain circumstances, especially if the right is in fact only registered in Germany but not utilized in any way by the licensee, it seems to be possible, in the light of the new letter of guidance, to argue that no revenue is attributable to the IP registered in Germany. However, this means that tax payers will have to check every license agreement in order to determine if actions are required or not.

Dr Marion Frotscher

Simon Bauer

The funding period of the Temporary Aid Programme II, which expires on 31 December 2020, will be continued and improved as fixed-cost aid by the Temporary Aid Programme III until the end of June 2021. Extensive financial assistance will now continue to be available for companies and self-employed persons who are severely affected by the measures to contain the coronavirus pandemic. The application for the non-repayable taxable subsidies is to be made in a simple way with the help of auditing third parties (tax advisors, certified accountants, sworn auditors or lawyers).

The Temporary Aid Programme III can be accessed by businesses, solo self-employed persons and members of the independent professions with an annual turnover in 2020 of max. 500 million EUR in compliance with the applicable aid regulations.

Independent of Nationwide Closures:

• At least 50 percent decline in turnover in two consecutive months or an average decline in turnover of 30 percent since April 2020 (compared to the same month in the previous year). Max. 200,000 fixed cost subsidy in all months in the period from January 2021 to June 2021 (as well as retroactively for December 2020, if applicable) in which there is a decline in turnover of at least 30 percent.

For Nationwide Closures:

• December 2020 to June 2021: For businesses that are directly or indirectly affected by the closures and have a monthly decline in turnover of at least 30 percent. Fixed cost subsidy of max. 500 TEUR for the respective month of closure.
• November 2020 to June 2021: For businesses that are not directly or indirectly affected by the closures (indirectly = 80 percent of the turnover with directly affected businesses) and have a monthly decline in turnover of at least 40 percent. Fixed cost subsidy of max. 200 TEUR for the respective month of closure.

Reimbursement of fixed costs is made on a percentage basis in the amount of the decline in turnover; however, fixed maximum percentage limits are applied. Eligible fixed costs include, in particular, rents and leases, financing costs, depreciation up to 50 percent, marketing and advertising costs and costs for structural hygiene measures up to 20 TEUR.

Outlook and Relevance in Practice

The Temporary Aid Programme III should be a big support for many businesses and self-employed persons to get through the coronavirus pandemic. It is not yet possible to submit an application due to the necessary technical programming and coordination with the federal states and the EU Commission. However, this should change in January. We will be pleased to support you in this process: Corona Informationscenter

Vivienne Sulek

Lukas Vienenkötter

For companies with business relationships to Great Britain and Northern Ireland, it is neces-sary to review their transactions in order to be able to carry out the correct VAT treatment in the New Year.

The German Federal Ministry of Finance published a letter on December 10, 2020 and provides practical advice:

1. Vat status of Great Britain and Northern Ireland

Generally, Great Britain and Northern Ireland will be considered as non-EU countries for VAT purposes after December 31, 2020. However, there is a special rule for Northern Ireland: The previously applicable rules will continue to apply to supplies. This means that Northern Ireland will continue to be regarded as belonging to the EU for supplies. However, this does not apply to services. The abbreviation "XI" will be preceded to the Northern Ireland VAT identification numbers (VAT-ID) and can be checked in the confirmation procedure in accordance with Section 18e of the German VAT Act (UStG). VAT-Ids with the abbreviation "GB" can no longer be checked.

Supplies to Northern Ireland entrepreneurs still need to be declared as tax-exempt intra-Community supplies and need also be declared in the recapitulative statement. Services to Northern Ireland traders, on the other hand, are no longer to be included in the recapitulative statement.

2. Vat treatment of supplies

After December 31, 2020, goods need to be declared for customs purposes upon import and export. However, this only applies to the movement of goods with Great Britain and not with Northern Ireland.

Movements of goods that begin before January 01, 2021 and end after December 31, 2020 are to be treated as intra-Community (i.e., as VAT exempt intra-Community supplies or taxable intra-Community acquisitions). The relevant requirements (including keeping records and supporting documents, reporting in ZM) need to be considered.

If goods leave the EU after December 31, 2020, these supplies are to be treated as VAT exempt export supplies of goods if the relevant documentary evidence is available (Section 6 (4) German VAT Act). On the input side, it is not required to declare intra-Community acquisi-tions, if it can be proven that the supplies were taxed with import VAT after 31 December 2020.

3. Vat treatment of services

First of all, it should be noted that no distinction is made between Great Britain and Northern Ireland in the VAT treatment of services (as opposed to supplies).

Most relevant for the VAT treatment is the time at which the service is rendered. Services are deemed to have been rendered when the underlying legal relationship has been terminated. Particularly in the case of ongoing services (e.g. rental services or subscriptions), it is important to determine when these are deemed to have ended. The same applies to partial services.

Thus, if the provision of a service to Great Britain or Northern Ireland begins before January 1, 2021 and ends after December 31, 2020, the service is to be considered as a service to a third country.

Services to an entrepreneur in Great Britain and Northern Ireland are generally taxable in Great Britain and Northern Ireland (so called "recipient location principle", Section 3a (2) German VAT Act). It is very likely that the reverse charge procedure will be also applicable. However, this depends on the future structure of the British and Northern Irish VAT law.

It should be noted that the services listed in Section 3a (4) sentence 2 German VAT Act (e.g. consulting services from a lawyer or certified tax advisor) to a non-entrepreneur from a third country are deemed to have been provided at his place of residence. It would be different, if the receiving non-entrepreneur is resident in the EU. In that case, the service would be deemed to be performed at the place of residence of the performing entrepreneur (Section 3a (1) of the German VAT Act).

4. Vat refund procedure

The Brexit does also have a direct impact on the input VAT refund procedure. It needs to be distinguished between input VAT amounts incurred before January 1, 2021 and after Decem-ber 31, 2020.

For input VAT amounts incurred before January 1, 2021, the regulation of the EU Directive of RL 2008/9/EC continues to apply. Accordingly, entrepreneurs from Germany can submit applications for the refund of UK input VAT via the portal of the German Federal Central Tax Office (BZSt). British entrepreneurs, on the other hand, need to use the HMRC Services Portal for input VAT refund applications, which will be then forwarded to the German Federal Central Tax Office. It should be noted, however, that input VAT refund applications for input VAT amounts incurred before January 1, 2021 need to be submitted by March 31, 2021 (!!) at the latest.

For input VAT amounts incurred after December 31, 2020 new rules need to be considered. The relief of input VAT will then basically follow the known procedure for entrepreneurs not resident in the EU.

This means that entrepreneurs need to submit the input VAT refund application directly to the responsible authority in the other state (German Federal Central Tax Office or UK authority).

However, there will be no changes for input VAT incurred on purchases of goods by German entrepreneurs in Northern Ireland or for Northern Irish entrepreneurs in Germany, as the provisions of the Directive 2008/9/EC will continue to apply to these cases.

5. Liability for supplies on electronic marketplaces

Basically, operators of an electronic marketplace are liable for unpaid VAT arising from supplies made by an online trader on the electronic marketplace. The operator can avoid this liability if he can provide the tax authorities with a so called "registration certificate" of the online trader in accordance with Section 22f (1) sentence 2 of the German VAT Act.

It should be noted that the provision of Section 3c German VAT Act (supplies to non-entrepreneurs below the supply threshold of EUR 100,000) will no longer apply to entre-preneurs from the UK after December 31, 2020. This means that the operator of an electronic marketplace will be required to submit a registration certificate in accordance to Section 22f (1) sentence 2 German VAT Act. However, there is a transitional period until January 31, 2021.

Registration certificates already issued to UK entrepreneurs before 31 December 2020 will remain valid after 31 December 2020. However, British entrepreneurs are obliged to appoint an authorized recipient in Germany as of January 1, 2021. A transitional period of one month also applies.

6. Mini-one-stop-shop-procedure for specific electronic services

Services according to Section 3a (5) of the German VAT Act (e.g. Streaming) that were made by a domestic or registered entrepreneur to private customers in the United Kingdom before January 1, 2021 can still be declared to the German Federal Central Tax Office under the MOSS procedure. However, it should be noted that tax returns up to and including Q4 2020 must be received by the German Federal Central Tax Office by the end of January 20, 2021. After this date, it will no longer be possible to use the MOSS procedure.

These principles also apply to sales pursuant to Section 3a (5) German VAT Act that have been provided to private customers in Germany by an entrepreneur resident or registered in the United Kingdom prior to January 1, 2021. Declarations not submitted in time, as well as services to private customers in Germany after December 31, 2020, must be declared directly in the general taxation procedure at the tax office Hannover-Nord in Germany.

By adding the new section 375a to the German Fiscal Code (AO), the expiration of a claim from the fiscal obligation through limitation pursuant to section 47 AO does not prevent the confiscation of unlawfully obtained proceeds of crime pursuant to section 73 to 73c of the German Criminal Code (StGB).

This substantial new regulation may already apply if, in the context of a (tax) audit, rather considerable tax-relevant errors which happened over a longer period are determined. It is not uncommon in such cases for tax authorities and investigating authorities to assume at least conditional intent and thus the existence of tax evasion.

In this context, authorities regularly ask about the internal organisation and the existence of controls, i.e. an ICS or tax compliance management system. The existence of such systems can, according to the German Fiscal Code's application decree on section 153 no. 2.6 sentence 6 AEAO, be an indication in individual cases that can speak against the existence of intent and recklessness.

Insofar as effective tax compliance measures lead to the negation of intent and thus to the negation of tax evasion (section 370 AEAO), this also precludes confiscation under section 73 et seq. StGB.

With regard to the amendments passed by the legislator with reference to criminal tax law, one might ask what these have to do with the coronavirus. The answer is simple: nothing.

Still, the amendments lead to significant tightening of criminal tax law, which once again illustrates the necessity and significance of effective tax compliance management. Tax compliance measures taken today may still pay off in the distant future ‑ especially in view of the newly regulated collection possibilities ‑ if the state's tax claims that are established today are already statute-barred under tax law. Here it is important that the tax compliance measures are documented in a then still comprehensible manner.

Timo Handel

Under the previous statutory regulation in section 6 of the German Income Tax Act (EStG), a quarter of the gross list price was to be used for the taxation of the private use of fully electric vehicles acquired by the end of 2030 only if this price amounts to EUR 40,000 at most. This upper limit is now increased to a gross list price of EUR 60.000 (section 6 (1) no. 4 sentence 2 no. 3 EStG).

With respect to the flat-rate wage/income tax on the private use of electric vehicles, this means that now also vehicles with a gross list price of up to a maximum of EUR 60,000.00 fall within the scope of the quartering of the assessment basis. If the gross list price exceeds EUR 60,000.00, a tax relief for half of the gross list price remains. Still, only fully electric vehicles that do not produce any carbon dioxide emissions at all are eligible for this type of tax benefit.

In detail, this means that taxpayers with profit income as well as employees have to pay tax on a monthly monetary benefit of only EUR 150 for an EV with a gross list price of EUR 60,000. Previously, because the maximum limit was exceeded, it would have been possible only to consider half of the gross list price, so that a monetary benefit of EUR 300 would have been subject to taxation.

In combination with the reduction of the VAT rate to 16 percent, there is additional potential for benefits for first-time registrations between 1 July 2020 and 31 December 2020. Since the gross list price at the time of first registration is to be used as a basis, the extended regulation applies to EVs with a net list price of up to EUR 51,724.00; with a VAT rate of 19 percent, the net list price at the time of first registration may only be EUR 50,420.00.

Irrespective of whether the vehicle is an electric vehicle or any other vehicle, all taxpayers who receive a vehicle ‑ with first registration in the period from July 2020 to December 2020 ‑ also for private use will benefit from the reduction in the VAT rate and the reduced gross list prices. Since the gross list price at the time of first registration is regularly used as a basis, the corresponding assessment basis for the flat-rate wage/income tax will be reduced by around 2.5 percent.

Daniel Hermes

The legislator has determined the upper limit of the reducing balance depreciation at a factor of 2.5 of the permissible straight-line depreciation for the asset in question. The reactivation of section 7 (2) of the German Income Tax Act (EStG) thus allows movable fixed assets to be depreciated using the declining balance method with up to 25 percent of the (residual) book value instead of the straight-line method, but no more than 2.5 times the straight-line method. However, the option of using the reducing balance method of depreciation is limited to assets which are acquired or manufactured in the years 2020 and 2021.

Although the increased depreciation option is not a direct liquidity aid, tax-deductible depreciation is brought forward and reduces the potential tax burden earlier than with straight-line depreciation. A higher loss carryback potential will also be created, which may have an effect through the improved loss carryback possibilities also established by the second Coronavirus Tax Relief Act. In addition to the immediate effect of the tax savings or de facto tax deferral, this should also create incentives to carry out or bring forward investments.

The introduction of the reducing balance method of depreciation on movable fixed assets is one of several options introduced by the legislator to enable companies to reduce their tax burden in an individually controlled manner in the context of the coronavirus crisis. Companies are advised to examine all newly created possibilities for their suitability in individual cases. Since the short-term reduction in profit due to the reducing balance method of depreciation turns out to be the opposite in later years, the various measures should be considered and planned in combination.

Matthias Ohmer

Diljinder Singh Walia

Basic research projects, industrial research projects as well as experimental development projects, which started after 1 January 2020, benefit from the Research Allowance Act. Contract research can also benefit.

All taxpayers who fulfill the conditions listed in the Act are eligible to receive the support. However, companies in difficulty are not eligible.

In addition to the eligible person the concrete project must also meet certain legal requirements.

The support is intended for personnel expenses in the broadest sense; besides the salaries of research staff this includes e.g. the personal contribution of an individual entrepreneur or a shareholder. In case of contract research, 60 percent of the expenses paid for by the contractor are eligible.

Pursuant to the legal wording effective until 30 June 2020 the assessment basis for the eligible expenses amounts to a maximum of EUR 2 million for one business year. With the legal wording effective as of 1 July 2020 the amount will be doubled to EUR 4 million for the period from 1 July 2020 to 30 June 2026. The research allowance is 25 percent of the assessment basis. For a calendar-based business year from 1 January to 31 December, this results in a research allowance in the maximum amount of EUR 750,000, from 2021 in the amount of EUR 1 million.

The research allowance is set off against the tax liability in the course of the tax assessment, e.g. the liquidity effect sets in with a delay. This must be considered in the planning and budgeting of projects.

Currently companies can do no more than examine their R&D projects for eligibility and prepare the documentation necessary for later applications. It has not yet been determined to what authority and in what form the applications must be filed.

Moritz Bocks

Significant increase of the maximum amount to EUR 5 / EUR 10 million

Losses of the years 2020 and 2021 can be carried back to the previous year in amounts of up to EUR 5 million (EUR 10 million in cases of joint assessment). They then retroactively reduce the taxable income – for 2019 in case of losses in the year 2020. And if 2020 was still positive, the same applies accordingly for a loss carryback from 2021.

Reduction of advance payments for 2019

Consequently, the higher loss carryback is supposed to be considered in the assessments of the prepayments for 2019. Upon application of the taxpayer, tax prepayments already made for 2019 will be reduced by a flat rate of 30 percent of the total amount of the income applied, but not exceeding EUR 5 million (EUR 10 million in cases of joint assessment) and refunded. Income from employment does not increase the flat rate amount, as there typically are no losses.

An expected higher loss carryback can be considered when detailed evidence is provided. For the flat rate amount it is sufficient that the prepayments for 2020 have been reduced to zero euros. The Act assumes that in such cases negative income is to be expected for the full year. For the taxpayer this means a real right to choose. The only risk for the taxpayer lies in the accordingly higher additional tax payment for 2019, which, however, will be deferred without interest until the expiry of one month after the announcement of the (first) tax assessment for 2020.

The "provisional" loss carryback

In order for the relief to reach the taxpayer quickly and unbureaucratically, the "provisional loss carryback" is supposed to be used in the assessment for 2019 already to have an effect on liquidity. Analogously to the reduction of the prepayments, the total amount of income will be reduced by a flat rate of 30 percent – without income from employment being considered and limited to a reduction potential of EUR 5 million (EUR 10 million in cases of joint assessment). For a further reduction detailed evidence is necessary.

With the assessment for 2020 the amount in which a loss can be carried back to 2019 is finally stipulated. The tax assessment for 2019 will be changed accordingly, the filing of a tax return for 2020 is mandatory.

The final loss carryback can also be deducted if and insofar the total amount of income of the previous year includes income from employment. For example, in cases of jointly assessed spouses this can lead to significant additional tax savings compared to the provisional loss carryback.

Loss carryback in case of final assessment for 2019

An application for consideration of the provisional loss carryback for 2020 can also be filed retroactively if the income tax assessment for 2019 is already final: However, in such a case the taxpayer must act quickly and file the application until 1 August 2020 at the latest.

Open questions

Because of the reference from Sec. 8 German Corporation Tax Act the changes made also apply to corporation tax. In spite of the typically higher volumes, the amounts for the individual assessment of taxable natural persons are applied, so that a GmbH can only claim a loss carryback of EUR 5 million.

Corresponding trade tax provisions have not been included in the Second Coronavirus Tax Relief Act. This once again shows the persistence of trade tax owed to municipal financing.

The provision on loss carryforward and minimum taxation remains unchanged, which will impede reconstruction. Many entrepreneurial top performers of our industrial location seem to have been neglected here. If the pandemic continues with undiminished severity in 2021, the legislator can probably be expected to act once again.

BEITEN BURKHARDT supports you by providing strategic advice, so that the liquidity assistance of the Second Coronavirus Tax Relief Act will reach you quickly and unbureaucratically.

Dr Rudolf Mikus

Christine Kruse

1. Reduction of the Value Added Tax Rates as of 1 July 2020

The Federal Parliament (Bundestag) and the Federal Council (Bundesrat) today have adopted the Second Coronavirus Tax Relief Act. This Act provides for the reduction of value added tax rates (VAT) from 19 percent to 16 percent or from 7 percent to 5 percent for the period as of 1 July to 31 December 2020. A detailed application letter from the Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) is meanwhile available.

2. General Bases

In principle, the value added tax rate applies when the services are provided; this should be unproblematic in case of deliveries.

However, difficulties may arise for other services which a provided for are period of time. These services are deemed to have been performed at the end of this period of time. If a performance of a service, thus, is started in June 2020 and is completed only in July 2020, it is deemed to have been completed for VAT purposes in July. In this case, the reduced value added tax rate shall prevail.

For settlements between entrepreneurs, the BMF letter provides that it is not complained about it for services which are provided in July 2020 if the services are inadvertently settled with the tax rate applicable until 30 June. The same applies to the VAT deduction.

3. Partial Services

In particular service recipients not entitled to VAT should review long-term (e.g. construction) agreements regarding agreed partial services and the value added tax rate applicable in the individual case to possibly benefit from the advantage of a lower value added tax rate until December 2020.

4. Advance Payments

In the case of down payments, partial payments, anticipated payments or advances, the tax pursuant to section 13 (1) no. 1a sent. 4 UStG is incurred when the payment is received.

There were concerns regarding the VAT deduction if deductions with 19 percent are received in June, however, the service is to be settled with 16 percent in July.

In the BMF letter, it is clarified that in this case the VAT deduction remains possible if all other conditions are fulfilled and the correction is made in the final invoice.

5. Price Changes through the Change in the Value Added Tax Rate

To what extent actual price changes arise under agreements through the temporary change in the value added tax rates is not a question of value added tax law but of civil law. Section 29 UStG provides for compensation claims for long-term agreements under certain circumstances. However, an unequivocal individual regulation between the contracting parties is recommended in any case. Long-term agreements should be reviewed in view of the changes.

6. Technical Implementation

The very short-term technical conversion e.g. of accounting, ERP and electronic cash register systems, is particularly challenging. However, there are at least simplifications regarding the reporting duties.

Sales at 16 percent or 5 percent are reported in sum as "taxable turnover at other tax rates" in the advance VAT returns and annual VAT returns. Corrections of sales originally declared with 19 percent or 7 percent and of the value added tax deduction are entered negatively in the respective lines to be filled in.

7. Postponement of the Maturity of Import Value Added Tax

The maturity of import value added tax will be postponed to the 26^th day of the second calendar month following the month in question. Hereby, companies receive a liquidity support.

There will be a separate BMF letter on this matter.

8. Conclusion

The BMF letter contains simplification rules that facilitate the temporary conversion to the lower tax rates. Due to the complexity of the subject matter, there is nonetheless still a need for clarification on various practical issues.

BEITEN BURKHARDT will be pleased to assist you with all tax and civil law questions and will also support you in questions of technical implementation e.g. in the accounting system.

Jens Müller

Government draft adopted

Following the meeting of the Federal Cabinet on 6 May 2020, the BMF published the government draft of a law on the implementation of tax aid measures to overcome the corona crisis ("Corona Tax Aid Act"). This corresponds in essence to the BMF's drafting aid as of 30 April 2020 and also contains provisions on the retroactive effect of reorganisation tax law. The government draft is to be submitted to the German Parliament as the next step and will be discussed there without delay.

Regulations on the period of the retroactive effect under the German Reorganisation Tax Act (UmwStG)

The periods of retroactive effect for tax purposes shall be temporarily extended in order to achieve a parallelism with the extension of the retroactive period in section 17 (2) sentence 4 UmwG by the COVID-19 Act. In this Act, the retroactive effect under commercial law was initially extended from eight to twelve months for reorganisation processes in 2020. The period of application can also be extended beyond 2020 by statutory regulation.

By virtue of the reference in section 2 UmwStG, it had to be assumed that mergers pursuant to sections 3 et seq. UmwStG as well as split-ups and spin-offs according to sections 15, 16 UmwStG can also be carried out for tax purposes with a retroactive effect of twelve months. This view was confirmed in the explanatory statement to the government draft.

Transactions within the meaning of sections 20, 24 UmwStG (in particular contributions) and sections 9, 25 UmwStG ("crossing change of legal form") were not directly covered by the wording, as separate retroactive periods are regulated for each of these. The legislator has now acknowledged this problem. In the government draft, it addresses the periods of retroactive effect for tax purposes in accordance with section 9 sentence 3 UmwStG and in accordance with section 20 (6) sentences 1 and 3 UmwStG in the new section 27 (15) UmwStG-E and temporarily extends them to twelve months.

After the adoption of the law, the UmwStG uniformly provides for retroactive periods of twelve months if the application for registration or the conclusion of the contribution agreement is made in 2020. The Federal Ministry of Finance may extend the period of application by statutory order in accordance with the statutory order under the COVID-19 Act.

We will be pleased to advise you on the planning and implementation of a legal transformation as well as the coordination with the fiscal authorities.

Dr. Karl-Dieter Müller

Benjamin Knorr

Dragan Skrebic

You can find a detailed version of this article under the "Tax Law" tab in our Coronavirus Informationscenter.

Does the extension apply to the period of the retroactive effect for restructuring measures for tax purposes as part of the German Reorganisation Tax Act?

In case of restructuring measures pursuant to the German Law Regulating Transformation of Companies (UmwG) according to section 17 (2) sent. 4 UmwG the following applies in many cases: the decisive closing balance sheet has been prepared as per a cut-off date preceding the application for entry in the register by no more than eight (8) months.

In accordance with the Law on Measures in Corporate, Cooperative, Association, Foundation and Property Ownership Law to combat the effects of the COVID-19 Pandemic, the final balance sheet under commercial law within the meaning of section 17 (2) sent. 4 UmwG may, in deviation from this, be prepared as per a cut-off date not more than twelve months prior to the date of application. This is valid for applications in the year 2020.

In the relevant documentation, no reference was made to a possible or even necessary adaptation of the provisions of the UmwStG. As a result, it is possible that the basic synchronisation of the Transformation Law and Reorganisation Tax Law cannot be implemented completely.

In our opinion, the adopted twelve-month period should be extended for tax purposes for mergers under sections 3 et seq. and sections 11 et seq. UmwStG as well as split-ups and spin-offs pursuant to sections 15, 16 UmwStG, since section 2 UmwStG applies and is based on section 17 UmwG with regard to the retroactive effect on the final balance sheet under commercial law.

The situation is problematic though in the case of spin-offs pursuant to sections 20, 24 UmwStG and legal form transformations in accordance with sections 9, 25 UmwStG, as the standards contain a separate provision on retroactivity (eight months). In this respect, we recommend that the eight-month period should first be included in any planning and coordinated with the competent tax office.

Final clarity as to whether the twelve-month period under the new law is also to apply generally for tax purposes will probably not be achieved in future until the legislator adopts (interim) adaptations to the UmwStG in line with the Law for the Mitigation of the Consequences of the COVID-19 pandemic in Civil, Insolvency and Criminal Proceedings Law or until the German Federal Ministry of Finance (BMF) makes a respective statement in writing. Otherwise, it is possible that some restructuring measures may already fail due to the lack of adaptations of the UmwStG.

BEITEN BURKHARDT will be pleased to support you in the planning and execution of the legal transformation and the coordination with the fiscal authorities.

Dr Karl-Dieter Müller

Benjamin Knorr

Dragan Skrebic

Tax exemption for business assets – consequences of corona for wage bill Regulation

In the context of transfers of business assets under inheritance and/or gift law, the German Inheritance and Gift Tax Law (Erbschaftssteuer- und Schenkungsgesetz, “ErbStG”), upon request, grants a relief, the so-called “Verschonungsabschlag”. Under certain circumstances this results in 85% (section 13a para 1 ErbStG) or 100% (section 13a para 10 ErbStG) of business assets being exempt from inheritance tax, if certain requirements are met for a period of five or seven years, respectively.

Pursuant to section 13 para 3 sentence 1, one of the conditions for the granting of such relief under section 13a para 1 ErbStG is that, within a period of five years following the acquisition (wage bill period), the total sum of all relevant annual wage bills of the business does not fall below 400% of the initial wage bill (minimum wage bill). If one were to aim for an exemption of 100%, the wage bill period is extended from five to seven years and the minimum wage bill to 700%.

Due to the progressing corona pandemic, it cannot be ruled out that it will become more difficult to achieve the prescribed minimum wage bill. For example, a reduction of employees due to the worsened economic situation may have a negative impact. Furthermore, it is still unclear how this regulation will apply in connection with wage cuts and any short-time work compensation claimed (on the topic of short-time work compensation see also blog article "Mit Kurzarbeit durch die Corona-Krise"). So far, neither the tax authorities have responded by issuing a letter of application nor the legislator has reacted with a legislative initiative.

Therefore, if short-time work compensation is claimed by a company (or subsidiary) that has taken advantage of the relief, we recommend first checking and then continuously monitoring the wage bills in order to ensure that they are observed despite any necessary measures. If this is not feasible, we recommend reaching a coordinated agreement with the responsible tax office.

Benjamin Knorr

Dragan Skrebic

Refund of the VAT Special Advance Payment

The fiscal authorities of the federal states (Länder) listed below have decided that, in order to strengthen the liquidity of companies affected by the coronavirus, upon application the VAT special advance payment for 2020 can be reduced to zero Euros and refunded.

As a rule, the VAT advance payment must be made on the 10th day after the end of the pre-registration period (following month) in accordance with Section 18 (1) German VAT Act (UStG).  However, upon request an extension of up to one month can be granted, provided that a special advance payment is made for the calendar year in question in accordance with Section 46 in conjunction with Section 47 (1) German Value Added Tax Ordinance (UStDV). The special advance payment amounts to on eleventh of the total advance payments for the previous calendar year.

According to 18.4 (4) German VAT Application Decree (UStAE), the fiscal authorities can determine the special advance payment in deviation from Section 47 UStDV, so that the above-mentioned measure is not expected to have any effect on the permanent extension already granted. The Bavarian State Ministry of Finance has also confirmed this.

The above-mentioned measure has so far been adopted by the following federal states (as of 25 March 2020), each with a link to the corresponding press release in German:

• Baden-Wuerttemberg (see Ministerium für Finanzen Baden-Württemberg Pressemitteilung vom 25.03.2020)
• Bavaria (see Bayerisches Staatsministerium der Finanzen Pressemitteilung Nr. 057 vom 23.03.2020)
• Brandenburg (see Ministerium der Finanzen und für Europa, Presseinformation 24.03.2020)
• Hesse (see Hessisches Ministerium der Finanzen Pressestelle 19.03.2020)
• Mecklenburg-Western Pomerania (see Finanzministerium Mecklenburg-Vorpommern Pressemitteilung vom 25.03.2020)
• Lower Saxony (see Landesamt für Steuern Niedersachsen Pressemitteilung vom 13.03.2020; item 8)
• North Rhine-Westphalia (see Antrag auf Steuererleichterung aufgrund der Auswirkungen des Coronavirus)
• Saarland (see Ministerium für Finanzen und Europa Pressemitteilung vom 23.03.2020)
• Saxony (see Sächsisches Staatsministerium der Finanzen Pressemitteilung vom 23.03.2020)

The measures offered by the tax authorities for tax deferrals, tax refunds and reduction of tax advance payments are first possibilities certain to show quick results for a short-term liquidity improvement.

Particularly in view of the currently extremely simplified applications for tax reductions and tax deferrals, every company should nevertheless already now, as a matter of extreme precaution, document the extent to which it is economically burdened by the consequences of the coronavirus.
We will support you with corresponding applications.

For more legal information around the coronavirus, see our Corona Information Centre.

Diljinder Singh Walia, tax advospr at BEITEN BURKHARDT Rechtsanwaltsgesellschaft mbH, Frankfurt
 

German Federal Ministry of Finance takes a stand on tax reductions for companies encountering liquidity problems because of coronavirus

Many companies have made very good profits in previous years, and advance tax payments have been set accordingly by the tax authorities. Due to coronavirus and the resultant drops in sales and profits, companies are encountering liquidity problems. The tax authorities have realized that and promised tax liquidity support for such companies. A communication of the German Federal Ministry of Finance regarding this matter was issued on 19 March 2020. The measures cover the following 3 points:

Deferments

If the taxes are already due and cannot be paid due to lack of liquidity, it will become easier to defer them. That principally requires that the payment would constitute a considerable hardship for the company. Due to the impact of the coronavirus, the tax authorities are required not to impose strict requirements in this respect. Harmless means for the application that the occurred damage cannot be verified in terms of value. The Bavarian State Ministry of Economic Affairs, Regional Development and Energy has already made available a form of a Antrags zur Steuerstundung (application for tax deferment) on its website under the heading: Themen -> Wirtschaft und Standort -> Aktuelles: Coronavirus (Topics -> Economy and Business Location -> Current Events: Coronavirus). The imposition of interest can be dispensed until 31 December 2020. In any case, however, this is at the discretion of the competent tax office. The Bavarian State Ministry has already announced that it wants to forego the imposition of interest. Other federal states are also considering doing so.

Adjustments of advance payments

The advance payments can be adjusted easier as soon as it becomes evident that a company's revenues will decrease compared to the previous year. This, in particular, concerns the following kinds of taxes: income tax, corporate tax. As in the case of the deferment, the simplified procedure applies here, too. I.e. the damages occurred cannot be specifically verified in terms of value. If an advance payment should be adjusted for the period following 31 December 2020, these simplification rules will not apply. By a decree of federal states issued on 19 March 2020, the reduction shall also be applied to trade tax (re-determination of the trade tax value base).

Enforcement and late payment fines

Should a company be unable to pay the income tax or the corporate tax on time, late payment fines in the amount of 1 % for each commenced month of the delay will become due. However, if the aforementioned taxes cannot be paid in good time because of liquidity shortages due to coronavirus, imposing a late payment fine will be forgone. Enforcement measures by the tax authorities (e.g. attachment) and the establishment of late payment fines are suspended from 19 March 2020 until 31 December 2020. Up to now, the reduction does not apply to trade tax, as it is a municipal tax.
 

Jens Müller

Matthias Ohmer