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Recent Developments in German Tax Legislation
Germany recently passed through the 2010 Tax Act which will be of interest to international investors. Taxand Germany highlights the recent developments to the Tax Act and how this may affect domestic and non-domestic companies when disclosing their taxes.
Loss trafficking rules - Hidden-reserve escape
Tax loss carry forwards are usually forfeited in case more than 50% of the shares in the respective German company are transferred to new shareholders within 5 years. If more than 25% up to 50% of the shares in the entity are transferred the loss carry forwards will be forfeited proportionally. For transfers after 31 December 2009, an exemption was introduced. Unused tax losses of an entity are preserved to the extent they are compensated by hidden reserves which have been built in those domestic business assets of the entity that are subject to German taxation. In the 2010 Tax Act, this rule has been slightly amended. Now, also non-domestic assets which are subject to German taxation can be taken into account when calculating the amount of available hidden reserves. If more than 25% up to 50% of the shares in the entity are transferred, the corresponding portion of hidden reserves is considered.
Usually, the hidden reserves are the difference between the (proportional) equity and the fair market value of the (proportional) shares. According to the 2010 tax act, in cases where the respective entity's equity is negative the hidden reserves shall be the difference between the (proportional) equity and the fair market value of the relevant (proportional) business assets.
These rules apply for all share transfers after 31 December 2009.
Transfer of electronic bookkeeping
The bookkeeping of a German entity usually needs to be carried out in Germany. Since December 2008 it is upon application possible to transfer and carry out the electronic bookkeeping in an EU member state. Due to the 2010 Tax Act it is now possible to apply for transferring and carrying out the electronic bookkeeping in any other country. The restriction to EU countries has been cancelled.
Electronic filing of tax accounts
The new rules regarding electronic filing of tax accounts will only be applicable to fiscal years beginning after the end of 2011.
As the 2010 Tax Act is now in place, companies may be subject to a number of changes to their tax disclosures. For example hidden reserves within domestic business assets were only subject to German taxation, however, the 2010 Tax Act has amended this slightly whereby non-domestic assets are subject to tax also. Companies, regardless if they are domestic or non-domestic should ensure that they are comply by the new 2010 Tax Act.
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