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Termination of tax treaty between Germany and Turkey


On 21 July 2009 Germany gave notice to the income and capital tax treaty between Germany and Turkey signed in 1985. As a result the protection against double taxation provided by the current treaty will not be applicable on tax relevant aspects incurring in fiscal years beginning on or after 1 January 2011. The one-sided termination of the treaty is seen as consistent continuance in the German policy to dispose of fictitious withholding taxes on interest, dividend and licence income agreed with emerging nations in the past.

According to official sources the deferred termination until 2011 shall enable the parties to negotiate a new treaty. However, given the complexity of the matter it is unclear whether the negotiations will have proceeded sufficiently in 2011 to provide tax payers continuous protection against double taxation.

Thus, tax payers active in Turkey through permanent establishments or investments in property, will have to monitor the further development closely.

Taxand's Take

Since Germany has now given notice of the income and capital tax treaty between Germany and Turkey, tax payers in Germany with tax relevant dealings in Turkey will need to be mindful that continuous protection against double taxation could come to a halt at the end of 2010. Thus, the missing protection of the treaty could lead to additional taxes in Germany on Turkish sourced income. Such relevant income could be derived from e.g. permanent establishments, real property, interest, dividends, licensing and employees delegated.

Our advice is to review the impact of the future termination of the tax treaty and closely monitor development of the negotiations for a new treaty. And as a precaution, in case discussions are still taking place by the time the termination is effective, preventive measures might need to be considered at an early stage in order to avoid adverse impacts.

The termination in principle only affects Germany and Turkey. However this does mean multinationals with subsidiaries in Germany and the latter having dealings in Turkey will be affected too. Do keep in mind that Germany has traditionally had numerous business relations with Turkey, so termination of this treaty could have a considerable impact.

Your Taxand contact for further queries is:
Arianne Jerey-Hener
T. +49 6196 592 24810

Taxand's Take Author