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Tax Advice

Limited Deduction of Operating Expenses in the Case of Hybrid Structures

As part of the im­ple­men­ta­tion of the EU re­qui­re­ments of the "Anti Tax Avo­idance Di­rec­tive" by the so-cal­led ATAD Im­ple­men­ta­tion Act, a pro­vi­sion was in­tro­du­ced to li­mit the de­duc­tion of ope­ra­ting ex­pen­ses in the case of hy­brid struc­tures (Sec­tion 4k Ger­man In­come Tax Act).

Hy­brid struc­tures arise as a re­sult of the dif­fe­rent le­gal clas­si­fi­ca­tion of fi­nan­cial in­stru­ments or en­ti­ties in dif­fe­rent coun­tries. The aim of the re­gu­la­ti­ons in Sec. 4k In­come Tax Act is to avoid the pro­fit-re­du­cing re­co­gni­tion of ex­pen­ses in mul­ti­ple coun­tries, or the clas­si­fi­ca­tion of a pay­ment as an ex­pense in one coun­try with si­mul­ta­neous non-ta­xa­tion of the in­come in ano­ther coun­try.

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The new re­gu­la­tion ap­plies re­troac­tively to ex­pen­ses in­cur­red af­ter Dec. 31, 2019, so that an ex­ami­na­tion of the busi­ness ex­pense de­duc­tion must al­re­ady be car­ried out as part of the pre­pa­ra­tion of the tax re­turns for the fis­cal year 2020.

You can ob­tain an in­itial over­view of this busi­ness ex­pense de­duc­tion re­stric­tion is gi­ven by our brief in­for­ma­tion.

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