Sources of tax law
German taxation is based on acts of parliament. Each tax is governed by its own
act; there is thus a Corporation Tax Act (Körperschaftsteuergesetz – KStG), a
Trade Tax Act (Gewerbesteuergesetz – GewStG), an Income Tax Act
(Einkommensteuergesetz – EStG) and a VAT Act (Umsatzsteuergesetz –
UStG), to name only the most important examples.
These acts are supplemented by a number of specific acts to regulate the tax consequences of a
given type of transaction or set of circumstances. Examples are the
Reconstructions Tax Act (Umwandlungsteuergesetz – UmwStG), which
basically allows incorporated and unincorporated businesses to reorganise
themselves free of immediate taxation, or the Foreign Tax Act
(Außensteuergesetz – AStG), which, broadly, is a collection of anti-abuse
provisions for the prevention of avoidance or evasion of German taxation
through the accumulation of income under a low-tax regime abroad.
It is this act which provides the fundamental legal basis for the extensive set of transfer
pricing rules applicable to transactions between related parties. These acts are
linked by a Tax Management Act (Abgabenordnung – AO) that regulates
reporting, filing, assessment, and appeal procedures common to all, or nearly
It also sets forth a number of general definitions and establishes the
basic rights and duties of taxpayers as well as regulating some of the procedural
questions of the tax administration.