Transition of ATAD 1 and ATAD 2 into German law: more than 15 months after the first draft, the Federal Government's bill follows

The (EU) 2016/1164 Directive dated July 12, 2016, and the (EU) 2017/952 Directive dated May 29, 2017 (EU Anti-Tax Avoidance Directives or ATAD 1 and ATAD 2), should already have been enacted into national law respectively by December 31, 2018, pursuant to Article 11 ATAD 1, and by December 31, 2019, pursuant to Article 2 ATAD 2. In Germany, however, the enactment of both directives is still pending more than 15 months after the first draft of an implementation law from December 10, 2019. At least, the implementation of the regulation on reverse hybrid companies could still be implemented in time by the end of this year.

Within the framework of the legislative procedure for implementation, which has been ongoing for more than 15 months, a comprehensive reform of the CFC rules under the Foreign Tax Act is to take place (implementation of a section of the ATAD 1 Directive) on the one hand. On the other hand, the bill is to eliminate tax incongruities arising from the use of hybrid financial instruments or from the participation in hybrid companies (implementation of the ATAD 2 Directive). This beinformed shows the development of the drafts up to the last bill of the Federal Ministry of Finance dated March 17, 2021, which passed the legislative process unchanged as government bill on March 24, 2021, and will now be submitted to the German Bundesrat for approval.

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Ministry of Finance publishes draft to strengthen Germany as a fund location
The draft bill of the German Federal Ministry of Finance encloses both mandatory and additional measures. First of all, the implementation of the EU directive on the cross-border distribution of undertakings for collective investment (keyword: pre-marketing) and the implementation of two EU directives on sustainability are mandatory. Here, Germany is ahead of the game, at least in terms of time. Additional information is provided on the topic of strengthening Germany as a financial center. The phrasing of this goal alone makes the hearts of the fund industry beat faster; it has been a long time since they have been flattered by the government. The draft bill actually contains measures for a new open mutual fund: right after the real estate fund, the infrastructure fund is launched in a new subsection 6. There is also something for special AIFs: Section 139 of the German Investment Code gets another sentence and professional investors get a closed special AIF in the legal form of a special fund. In addition, a few details: shareholder loans in 100 percent real estate companies, further competences of the German Financial Supervisory Authority, closed master-feeder-structures for private investors and digital communication. In terms of taxation, there are new regulations for employee shareholdings in "start-ups" and a VAT exemption for administrative services for "venture capital funds". We would like to present the most important draft laws in more detail.
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Creation of a permanent establishment by outsourcing management responsibilities to a domestic management conpany

The Fiscal Court of Berlin-Brandenburg has ruled in its decision from November 2 st, 2019, that a corporation having its place of business management located outside of Germany can create a per- manent establishment in Germany, solely by providing a German tax resident property management company with extensive management responsibilities. Even if this ruling discusses the rare case of a corporation which has its registered seat domestically but its place of management abroad at the domicile of its managing director, the consequences of this ruling can be applied to cases, where entirely non-domestic companies hand over management responsibilities to German tax resident management companies. This ruling is especially relevant for common inbound real estate structures using non-domestic companies to hold interest in domestic real estate.

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