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German Rules on Corporate Expatriations

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... German gift/inheritance tax regardless of residency of donor/donee/decedent/heir ... gift/inheritance tax provided that donor/donee/decedent/heir are non-residents ... – PowerPoint PPT presentation

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Title: German Rules on Corporate Expatriations


1
German Rules on Corporate Expatriations
  • 16 April 2009
  • Klaus Sieker

Sieker/09031001.ppt
2
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
3
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

4
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

5
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)

6
C. Corporate expatriations from Germany (2)
  • Direct

Indirect
Luxembourg
Germany
Luxembourg
Germany
Neue Deutsche Bank SA
Allianz SE Board/Vorstand
Deutsche Bank AG
7
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

8
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

9
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 SE Board/Vorstand
10
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 SE Board/Vorstand
11
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 Bank AG, Germany
12
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 Bank AG, Germany
13
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
14
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 Bank AG, Germany
15
Contact Dr. Klaus Sieker E-Mail
klaus.sieker_at_fgs.de
BONN Johanna-Kinkel-Straße 2 - 4 53175
Bonn telephone 49(0) 2 28 / 95 94 -
0 telefax49 (0) 2 28 / 95 94 - 100 E-Mail
bonn_at_fgs.de
BERLIN Friedrichstraße 69 10117 Berlin
telephone49(0) 30 / 21 00 20 - 20
telefax49(0) 30 / 21 00 20 - 99 E-Mail
berlin_at_fgs.de
FRANKFURT AM MAIN Platz der Einheit 1 60327
Frankfurt/Main telephone49(0) 69 / 71 703 -
0 telefax49(0) 69 / 71 703 - 100 E-Mail
frankfurt_at_fgs.de
MÜNCHEN Brienner Straße 29 80333
München telephone49(0) 89 / 80 00 16 -
0 telefax49(0) 89 / 80 00 16 - 99 E-Mail
muenchen_at_fgs.de
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