CFC rules
If a German corporation, partnership, or permanent estab-
lishment (in this section referred to as a German entity) holds
an investment in a foreign corporation, Germany’s CFC rules
(controlled foreign company rules, Hinzurechnungsbesteuerung)
under the German Foreign Transactions Tax Law (Außen-
steuergesetz – AStG) must be considered.
Taxation in accordance with the CFC rules will apply at the level
of the German entity if the foreign corporation is deemed to be
an intermediary company (Zwischengesellschaft). Particular care
must be exercised in the case of a German holding company.
CFC rules apply where the following conditions are cumulatively
met:
– In general, shareholders who are tax resident in Germany
hold (alone or jointly, directly or indirectly) more than 50%
of the shares or more than 50% of the voting rights in the
foreign corporation.
– Passive income of the foreign corporation
– Low rate of taxation at the level of the foreign corporation
which is where the effective income tax rate is lower than
25% (claims for tax refund or tax credits raised by the share-
holders against the state or territory of the foreign corporation
are included in the calculation of the foreign corporation’s tax
burden).
– Foreign corporations whose headquarters or management is
located within the EU/EEA may provide evidence that the for-
eign company pursues genuine economic activities (“motive
test”). If this is proven successfully, the foreign corporation is
then not subject to controlled foreign company taxation.
EU Forecast
euf:ba.18g:32/nws-01