05.12.2023MOF publishes draft guidance on tax measures in regard to noncooperative jurisdictions
Anti-avoidance rules apply with regard to jurisdictions on the EU list
On 30 November 2023, the German Ministry of Finance (MOF) published draft guidance on the application of the German anti-tax avoidance measures regarding noncooperative jurisdictions. These measures were introduced in 2021 as part of the Tax Haven Defense Act (see GTLN dated 03/02/23) as a response to the European Council’s guidelines issued at the end of 2019 encouraging EU member states to implement legislative measures designed to impose specific penalties on jurisdictions placed on the EU list of noncooperative jurisdictions for tax purposes (“EU list”). The draft guidance is open for comments from interested parties until 9 January 2024.
The draft guidance provides additional insight into how the tax authorities are applying the rules and interpreting the provisions of the law. This is particularly helpful, as the German rules include all four types of defensive measures provided for in the European Council’s guidelines, even though the guidelines provide an obligation for EU member states to implement only one of these types of measures. The defensive measures provided for in the Tax Haven Defense Act are the following:
- Payments to recipients that are resident in a noncooperative jurisdiction are nondeductible for German tax purposes;
- Significantly tightened controlled foreign company rules apply for German taxpayers that directly or indirectly hold shares in a company that is resident in a noncooperative jurisdiction;
- Reduced or 0% withholding tax rates based on an applicable tax treaty or unilateral relief do not apply for payments to a recipient that is resident in a noncooperative jurisdiction, and the German withholding tax rate is the final rate; and
- The German domestic participation exemption rules or an exemption based on an applicable tax treaty do not apply for dividends from a subsidiary or gains from the sale of shares in a subsidiary if the subsidiary is resident in a noncooperative jurisdiction.
The EU list was updated on 19 October 2023 and currently includes the following 16 jurisdictions: American Samoa, Anguilla, Antigua and Barbuda, Bahamas, Belize, Fiji, Guam, Palau, Panama, Russia, Samoa, Seychelles, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands, and Vanuatu. It is expected that the next annual update (expected mid-December) of the German list of noncooperative jurisdictions will include these jurisdictions.
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Andreas Maywald
Client Service Executive | ICE - German Tax Desk
