Update: Reforms in German Tax Legislation – Overview of Pending Legislative Procedures and Legislative Initiatives

Arell BuchtaPartner & Managing Director, eureos gmbh steuerberatungsgesellschaft rechtsanwaltsgesellschaft

As we have already reported, the German government seems intent on completing as many tax law reforms as possible as quickly as possible before the general election in September 2021. Since May 19, 2021, the recommendations of the Bundestag Finance Committee for the KöMoG and the ATAD-UmsG have been available. On May 21, 2021, both bills were passed by the Bundestag, taking into account the amendments proposed by the Finance Committee. We have compiled the most important changes for you.

Update Corporate Income Tax Modernization Act (KöMoG) & ATAD Implementation Act (ATAD-UmsG)

Shortly before the parliamentary summer recess, the legislative processes for the two legislative initiatives have entered the critical phase.

The hearings in the Bundestag on May 3, 2021 were followed by intensive debates among the members of parliament regarding the contents of the KöMoG, as well as the ATAD-UmsG.  Since May 19, 2021, the recommendations of the Bundestag Finance Committee for the KöMoG and the ATAD-UmsG have been available. On May 21, 2021, both bills were passed by the Bundestag taking into account the amendments suggested by the Finance Committee. On June 28, 2021, the Bundesrat (upper house of the German parliament) is expected to give its approval for the two drafts.

Prior to the vote in the Bundestag, the Bundestag Finance Committee had recommended a number of changes to both bills. The main changes compared with the previous government draft are:

KöMoG:

  • Applications for the option must always be submitted electronically, one month before the start of the fiscal year
  • Opting company is a claimant for the purposes of the research allowance within the meaning of the KStG
  • Provision to prevent not-taxed or low-taxed income in the event of international qualification conflicts
  • Clarification on the regulation on the option back to the original taxation scheme in the event of withdrawal of the penultimate shareholder
  • As a result of the change to the tax group contribution solution there is now an option regarding the amount of the profit-reducing reserve
  • Extension by one year for the reinvestment periods of sec. 6b EStG and the investment period of sec. 7g EStG

Amendments to sec. 5 and 6 of the GrEStG were newly included in the Bundestag Finance Committee’s recommended resolution. Thus, the option leads to a partial denial of the preferential regulations. According to the explanatory memorandum to the law, this is intended to avoid tax structuring.

The amendments of the Finance Committee were adopted by the Bundestag and have thus been fully considered in the final bill of the Bundestag.

The Option is to be applicable for the first time in 2022, meaning that applications can already be submitted in 2021. The Finance Committee has thus not complied with the wish of the federal states to allow the option to be applied for the first time in 2023.

ATAD-UmsG:

  • Implementation of Article 9a ATAD on reverse hybrid arrangements
  • Wording in sec. 4k (5) Sentence 1 EStG-E on imported taxation mismatches has been clarified
  • 4k (2) sentence 3 EStG and sec. 4k (4) sentence 2 EStG adjusted to Article 9b sentence 2 ATAD (dual residents)
  • Option to apply for the disclosure of hidden reserves if a restriction of taxation rights in sec. 12 (1) sentence 3 KStG no longer applies
  • Clarification of the requirements for profit participation in sec. 1 (2) sentence 1 no. 1 AStG
  • Amendment to cross-border profit deferral in multinational groups in sec. 1 (3a) sentence 4 AStG
  • In the case of an indirect participation via a foreign or domestic investment fund or special investment fund, the addition taxation is excluded in Sec. 13 (5) sentence 2 AStG
  • Deadline for retrospective adjustment of advance income, corporation and trade tax payments for 2019 and 2020 extended
  • Extension of the declaration deadline and interest-free grace period for 2020 by three months
  • Enabling a correction of the tax return in cases where an exemption certificate is issued retroactively from the date of receipt of the application but was not yet issued at the time of filing the tax return(sec. 50c (2) sentence 3 EStG)
  • Entry into force: generally, on the day after promulgation in the Federal Law Gazette
    • Exceptions are the regulations on de-stratification taxation in the EStG and the KStG (effective from January 1, 2020) and regulations implementing Article 9a of the ATAD (effective from January 1, 2022)

The tightening of the transfer pricing rules for financing relationships/services will therefore not be introduced with the ATAD Implementation Act after all. These were previously rejected in connection with the AbzStEntModG. The proposals of the Finance Committee have also been fully considered in the final draft of the Bundestag bill.

Update Real Estate Transfer Tax Act

There was also movement in reforming the real estate transfer tax. On May 7, 2021 the Bundesrat approved the amendments passed by the Bundestag. On May 17, 2021, the Real Estate Transfer Tax Amendment Act was published in the Federal Law Gazette. Therefore, the new regulations, including the numerous special application regulations must be observed from July 1, 2021.

We will keep you informed about the further development of the pending bills.

We are happy to answer any questions you may have.

We have collected the information available on our Corona news portal which includes a constantly updated overview regarding the measures to tackle financial impacts of the Corona crisis.