Tax Advice

Federal Cabinet approves Draft for Implementation of the Global Minimum Tax

On 16 Au­gust 2023, the Ger­man Fe­deral Ca­bi­net ap­pro­ved the draft of a Mi­ni­mum Tax Di­rec­tive Im­ple­men­ta­tion Act. In ad­di­tion to the in­tro­duc­tion of a com­pre­hen­sive mi­ni­mum tax law, this also in­clu­des an ad­just­ment to the ta­xa­tion of ad­di­ti­ons.

The draft law deals with the im­ple­men­ta­tion of the EU Mi­ni­mum Tax Di­rec­tive (Di­rec­tive (EU) 2022/2523, Abl L 328, 22 De­cem­ber 2022, p. 1, cor­rec­ted in OJ L 13, 16 Ja­nu­ary 2023, p. 9) to en­sure a glo­bal mi­ni­mum ta­xa­tion. The draft, which was ad­op­ted in the ca­bi­net mee­ting on 16 Au­gust 16 2023, is ba­sed on a dis­cus­sion draft pre­pa­red by the Ger­man Fe­deral Mi­nis­try of Fi­nance (de­tai­led in­for­ma­tion on the draft bill can be found here). The go­vern­ment draft now en­te­ring the le­gis­la­tive pro­cess de­via­tes in cer­tain points from the pre­vious dis­cus­sion draft. Among others, the fol­lo­wing re­gu­la­ti­ons can be found in the draft le­gis­la­tion:

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Minimum Tax Act

Groups of com­pa­nies that have achie­ved sa­les re­ve­nues of at least EUR 750 mil­lion in at least two of the four pre­ce­ding fis­cal years are in prin­ci­ple to be sub­ject to the mi­ni­mum tax from 2024, in­so­far as pro­fits of the group mem­bers are sub­ject to an ef­fec­tive tax rate of less than 15% in a tax ju­ris­dic­tion.

The star­ting point for de­ter­mi­ning the ef­fec­tive tax rate is the ac­coun­ting data in ac­cor­dance with in­ter­na­tio­nally re­co­gnized ac­coun­ting stan­dards, which are to be mo­di­fied by a num­ber of ad­just­ments in or­der to de­rive the so-cal­led mi­ni­mum tax pro­fit or mi­ni­mum tax loss of the in­di­vi­dual busi­ness units of a ju­ris­dic­tion. Among other things, port­fo­lio di­vi­dends from long-term share­hol­dings (par­ti­ci­pa­tion rate be­low 10%, par­ti­ci­pa­tion pe­riod of at least 12 months) as well as cer­tain gains and los­ses from equity in­vest­ments are to be ex­clu­ded from the cal­cu­la­tion. In cer­tain ca­ses, the go­vern­ment bill pro­vi­des for the pos­si­bi­lity of wai­ving these mo­di­fi­ca­ti­ons upon ap­pli­ca­tion. Also, so-cal­led qua­li­fied cur­rency gains and risks can now be ex­clu­ded from the cal­cu­la­tion of the mi­ni­mum tax pro­fit or mi­ni­mum tax loss to be de­ter­mi­ned un­der cer­tain con­di­ti­ons upon ap­pli­ca­tion.

For the cal­cu­la­tion of the ef­fec­tive tax rate, the so-cal­led ad­jus­ted re­co­gnized ta­xes must also be de­ter­mi­ned. Of par­ti­cu­lar re­le­vance here is the ex­tent to which de­fer­red ta­xes are to be ta­ken into ac­count.

In ad­di­tion to a five-year tax ex­emp­tion for cor­po­rate groups with sub­ord­inate in­ter­na­tio­nal ac­tivi­ties and sim­pli­fi­ca­ti­ons for im­ma­te­rial busi­ness units, the go­vern­ment draft also con­ta­ins fur­ther sim­pli­fi­ca­ti­ons. The CbCR safe har­bor ru­les, which were al­re­ady pro­vi­ded for in the go­vern­ment draft and a pre­vious dis­cus­sion draft, are li­kely to be of par­ti­cu­lar re­le­vance for prac­tice.

Further changes to other tax legislation

The go­vern­ment draft also con­ta­ins other amend­ments to exis­ting tax laws that are re­la­ted to the new mi­ni­mum tax law.

For ex­am­ple, the re­duc­tion of the low tax th­res­hold in the con­text of the Ger­man CFC-ru­les (Sec. 8 (5) Ex­ter­nal Tax Re­la­ti­ons Act) from the cur­rent 25% to 15% in the fu­ture, which has long been de­man­ded by com­pa­nies, con­sul­tants and as­so­cia­ti­ons, is en­vi­sa­ged. At the same time, the low tax th­res­hold re­gar­ding the roy­alty de­duc­tion li­mi­ta­tion rule (Sec. 4j In­come Tax Act) is also to be lo­wered from 25% to 15%. The dis­cus­sion bill still en­vi­sa­ged a com­plete ab­oli­tion of the roy­alty cap.

In the pre­vious draft bill, it was in­iti­ally plan­ned to eli­mi­nate the trade tax lia­bi­lity of the add-back amount re­sul­ting from Ger­man CFC-ru­les. Howe­ver, this was dis­pen­sed with in the go­vern­ment draft.

Note: In or­der to en­ter into force, the draft law must still pass the Ger­man le­gis­la­tive pro­ce­dure in full.

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