German Rules on Corporate Expatriations

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German Rules on Corporate Expatriations

• 16 April 2009
• Klaus Sieker

Sieker/09031001.ppt
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German Rules on Corporate Expatriations
A. German rules on corporate tax residence
B. Consequences/potential disadvantages of German
tax residency
C. Corporate expatriations from Germany
D. Objectives/benefits of corporate expatriation
from Germany
E. German tax consequences of corporate
expatriation
F. Direct/indirect expatriation within the EU/EEA
G. Direct/indirect expatriation outside the EU/EEA
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A. German rules on corporate tax residence

• Whether organized under foreign or German law a
  corporation is tax resident in Germany if it
  either maintains its
• Statutory seat or
• Place of management in Germany
• Seat refers to the statutory seat as per the
  articles
• Place of management is defined as the place from
  where instructions in regard to the day to
  dayoperations are issued

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B. Consequences/potential disadvantages of German
tax residency

• Worldwide income subject to German tax
• Non-resident corporations subject to German tax
  only with certain German source income
• Dividends paid subject to 26.375 withholding
  tax
• No (German) withholding tax on dividends paid by
  non-resident corporations
• Resident corporation is subject to Germanys CFC
  Rules
• Non-resident corporations are not
• Sale of shares in German tax resident corporation
  is subject to 26.375 capital gains tax
• No German capital gains tax on non-resident
  sellers selling shares in a non-resident
  corporation
• 10 or greater participations in resident
  corporations subject to German gift/inheritance
  tax regardless of residency of donor/donee/deceden
  t/heir
• Participations in non-resident corporations
  escape German gift/inheritance tax provided that
  donor/donee/decedent/heir are non-residents

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C. Corporate expatriations from Germany (1)

• Expatriation relinquishing German tax residency
  
• No transfer of operations (other than top
  management)
• Expatriation (in a strict sense) requires that
  the German corporation transfers both
• Its statutory seat and
• Its place of management
• Transfer of statutory seat permissible (under
  corporate law) for a GmbH and a SE (within the
  EU) but not for an AG
• Expatriation (in a wider sense) achievable by
  means of a corporate reorganization (share for
  share exchange, cross-border merger)

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C. Corporate expatriations from Germany (2)

• Direct

Indirect
Luxembourg
Germany
Luxembourg
Germany
Neue Deutsche Bank SA
Allianz SEBoard/Vorstand
Deutsche Bank AG
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D. Objectives/benefits of corporate expatriation
from Germany

• Benefits for the expatriating corporation
• Escape CFC taxation
• Additional opportunities for implementing
  structures saving taxes in countries of
  operations
• Benefits for the shareholders of the expatriating
  corporation
• Escape capital gains tax
• Escape gift/inheritance tax

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E. German tax consequences of corporate
expatriation

• Depends on
• the method of expatriation (direct or indirect)
• the destination (within the EU/EEA vs. outside
  the EU/EEA)
• Corporate level
• Exit charge
• Losses carried forward
• Real estate transfer tax
• Shareholder level
• Capital gains tax charge

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F. Direct expatriation within the EU/EEA (1)

• Gain recognition required unless assets of the
  corporation remain attributable to German PE
• Presumption that participations and intangibles
  are attributable to head office
• Losses carried forward remain intact
• No RETT

Luxembourg
Germany
Allianz SEBoard/Vorstand
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F. Direct expatriation within the EU/EEA (2)

• Shareholder level
• No gain recognition in case of shares in a SE
• In other cases gain recognition required unless
  Germanys right to tax shareholder with capital
  gain is not affected

Luxembourg
Germany
Allianz SEBoard/Vorstand
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F. Indirect expatriation within the EU/EEA (1)

• Before After

• Corporate level
• No gain recognition
• Losses of Deutsche Bank AG and its German
  subsidiaries are extinguished if Neue Deutsche
  Bank SA acquires more than 50 of Deutsche Bank
  AG
• If Neue Deutsche Bank SA acquires 95 or more of
  the shares in Deutsche Bank AG, RETT is triggered

Shareholders
Shareholders
Deutsche Bank AG,Germany
Neue Deutsche Bank SA,Luxembourg
Deutsche BankAG, Germany
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F. Indirect expatriation within the EU/EEA (2)

• Before After

• Shareholder level
• Upon application gain recognition not required if
  Neue Deutsche Bank SA acquires more than 50 of
  the shares in Deutsche Bank AG

Shareholders
Shareholders
Deutsche Bank AG,Germany
Neue Deutsche Bank SA,Luxembourg
Deutsche BankAG, Germany
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G. Direct expatriation outside the EU/EEA

• Corporate level
• XYZ Inc. organized under Delaware law having its
  place of management in Germany
• Management moves to the USA
• Gain recognition required (whether or not German
  PE is retained)
• Losses?
• No RETT
• Shareholder level
• Gain recognition required unless Germanys right
  to tax shareholder with capital gain is not
  affected

USA
Germany
XYZ Inc.Board
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G. Indirect expatriation outside the EU/EEA

• Before After

• Corporate level
• Same rules as for expatriation within EU/EEA
• Shareholder level
• Mandatory gain recognition

Shareholders
Shareholders
Deutsche Bank AG,Germany
Neue Deutsche Bank AG,Switzerland
Deutsche BankAG, Germany
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Contact Dr. Klaus Sieker E-Mail
klaus.sieker_at_fgs.de
BONN Johanna-Kinkel-Straße 2 - 453175
Bonntelephone 49(0) 2 28 / 95 94 -
0telefax49 (0) 2 28 / 95 94 - 100 E-Mail
bonn_at_fgs.de
BERLIN Friedrichstraße 6910117 Berlin
telephone49(0) 30 / 21 00 20 - 20
telefax49(0) 30 / 21 00 20 - 99E-Mail
berlin_at_fgs.de
FRANKFURT AM MAIN Platz der Einheit 160327
Frankfurt/Maintelephone49(0) 69 / 71 703 -
0telefax49(0) 69 / 71 703 - 100 E-Mail
frankfurt_at_fgs.de
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Münchentelephone49(0) 89 / 80 00 16 -
0telefax49(0) 89 / 80 00 16 - 99 E-Mail
muenchen_at_fgs.de