For further information please visit the German version of this site or contact the Practice Group Tax tax @ sibeth.com

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For further information please visit the German version of this site or contact the Practice Group Tax tax @ sibeth.com

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For further information please visit the German version of this site or contact the Practice Group Tax tax @ sibeth.com

print

For further information please visit the German version of this site or contact the Practice Group Tax tax @ sibeth.com

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In private companies with land property, a transfer of shares (at least 95% of the shares within 5 years) can lead to real estate transfer tax being payable pursuant to Section 1 (2a) of the German Real Estate Transfer Tax Act (GrEStG). This may also affect company restructuring measures. The coordinated decree of the federal states on the application of Section 1 (2a) of the German Real Estate Transfer Tax Act of 25 February 2010 replaced the previous coordinated decree of 26 February 2003 on Section 1 (2a) of the German Real Estate Transfer Tax Act . The amended version addresses a number of questions of application in relation to the legal provisions. In many points it is in harmony with its predecessor. But in some places there are also differences. It was no surprise that numerous questions of doubt were again not addressed.

The new coordinated decree of the federal states confirms two orders issued by the regional finance directorate in 2008 which define (or deviate from) the previously applicable coordinated decree of the federal states of 2003 by stating that in the case of an indirect investment via a private company acting as an intermediary, the investment ratio is included in the calculation. This corrects a device which was formerly often used in property transactions in the form of a share deal and which used a two-layer private company structure to permit the purchase of over 99% of the shares of a company without any liability for real estate transfer tax.

The previous view of the administration is abandoned in the case of a retransfer of an investment from the trustee who has so far held the investment as the formally registered shareholder to the trustor, who is actually the economic investor. If the trustor switches (back) to the position of the shareholder, formerly this did not have any effect for real estate transfer tax, but now it must be taken into account under Section 1 (2a) of the German Real Estate Transfer Tax Act. It depends on the individual case whether the tax exemption granted by the tax authorities for this case leads to a complete exemption from the real estate transfer tax liability which may arise.

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In a ruling of 24 February 2010 (IX R 57/09) the Federal Court of Finance stated its opinion on the possibility of the cross-border use of losses. The claimant wanted the losses that he had suffered abroad during 2003 (in Austria) to be taken into account in his income tax assessment for 2004. There was no separate assessment of the loss according to Section 10d (4) sentence 1 of the German Income Tax Act. The Federal Court of Finance rejected the appeal. In relation to the foreign losses, the court said that the claimant should have ensured a separate assessment of the loss carried forward in order for the accrued losses to be taken into account. In this respect, even the favourable case law of the European Court of Justice on the use of final losses and EU law was no help to the taxpayer.

The question of the cross-border use of losses within the EU continues to bring up many questions. Although the European Court of Justice has already issued judgments in several cases which dealt with the question of the use of cross-border losses, in Germany and other member states there is not yet any consistent policy. Recently the Finance Court of Hamburg (in a ruling of 18 November 2009, 6 K 147/08) and the Finance Court of Düsseldorf (in a ruling of 8 September 2009, 6 K 308/04) again had to decide on the deduction of foreign losses within the EU. The rulings differed especially in the question of whether final losses can be deducted in the year in which they originate (i.e. in the same period) or only in the year in which it is finally clear that no further use abroad is possible. In addition, during the last year the Federal Ministry of Finance issued a non-application decree as a reaction to rulings of the European Court of Justice and the Federal Court of Finance in the case of Lidl Belgium which enabled losses to be deduced. So the situation for the taxpayer remains unclear.

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In its ruling of 24 November 2009 (I R 12/09) the Federal Court of Finance (BFH) decided that dividends on shares which are the subject of a trustee contract can only be assigned to the trustor for tax purposes if the trustor has full control over the trustee relationship both under the agreements made with the trustees and in the actual execution of the trust. An essential element of this control is that the trustor must have the power to give instructions for the treatment of the property held in trust. In addition, the trustor must be entitled to demand the return of the property held in trust at any time. On the basis of the agreement and its implementation it must thus be beyond doubt that the trustee is acting solely for the account of the trustor. These criteria apply not only to the circumstances in the case in question, i.e. a trust arrangement for securities, they are likely to be applicable to trustee relationships in general.

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Up to now, case law pronouncements have consistently been based on the assumption that expenditure that is partly private and partly vocational cannot be claimed against tax, not even the part of the expenditure which arises for work purposes (the “prohibition of sub-division and deduction”).

The Grand Senate of the Federal Court of Finance has now relaxed this case law policy in one area. In a ruling of 21 September 2009 (Federal Court of Finance, GrS 1/06, DStR 2010, 101) the court recognises expenditure incurred for a journey for mixed purposes in proportion to the vocational use.

In the case in dispute, the person spent seven days on a trip to the USA but only four days were spent at a vocational congress. The other three days were a holiday. The tax office therefore recognised only the congress fees, overnight costs for four nights and extra sustenance costs for five days. The whole of the flight costs were classed as mixed expenditure and were not admitted for a deduction because of the prohibition of sub-division and deduction.

But the Grand Senate of the Federal Court of Finance also recognised 4/7 of the outbound and return flight costs as vocational expenditure. Expenditure for journeys with a mixed purpose can be sub-divided proportionally based on the time of the vocational and private use and classified as vocation or work-related expenditure on the one hand and non-deductible private expenditure on the other hand. This is on condition that the time taken for vocational purposes is fixed and is not of subordinate importance. In addition, the different purposes must not be mingled in such a way that they can no longer be sub-divided by objective criteria.

The ruling of the Grand Senate could also have an effect on other expenditure for mixed purposes, especially because the strict prohibition of sub-division and deduction has already been ignored in some cases over recent years. But indispensable expenditure for private living (e.g. clothes or glasses) is still excluded from any deduction.

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For further information please visit the German version of this site or contact the Practice Group Tax tax @ sibeth.com

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For further information please visit the German version of this site or contact the Practice Group Tax tax @ sibeth.com

print

For further information please visit the German version of this site or contact the Practice Group Tax tax @ sibeth.com

print