German Tax Law

Introduction

1. Introduction
2. Background

Sources of Law Effecting Germany

1. Supra-National (or unwritten) Law Concepts
2. Basic Law (i.e. Constitution)
   1. International Law
      1. Multi-National Law
         1. EC Law
      2. Bi-National (or Bi-Lateral)
         1. Double Tax Conventions
            1. German Constitution Art. 59 (i.e. GG) gives DTC's priority over Germany's right to Tax as given in the General Tax Act (i.e. AO) §2
            2. German Statutory Law (i.e. Uni-lateral law)
               1. Tax Acts
               2. Ordinances (i.e. EStDV or Einkommensteuer-Durchführungs-verordnung)
               3. Autonomous Statutes
            3. Non-Statutory Law
               1. Court Decisions (or Judge Made Law)
               2. Other Executive Law
                  1. Guidelines
                  2. Decrees
                  3. Circulars
                  4. Orders

References & Definitions

1. References
2. Definitions

Taxation of Natural Individuals

1. German Residents
   1. Taxation
      1. Income from German Sources
         1. International
            1. Multinational (i.e. EU)
            2. Bi-Lateral
               1. DTC's
                  1. Uni-Lateral
                     1. EStG §2(1) Income Source Identification
                        1. Agriculture and forestry income
                        2. Business income
                        3. Independent Personal Services
                        4. Dependent personal service income
                        5. Capital Investment income
                        6. Rental income
                        7. Other, income including annuities ad private short-term capital gains
                     2. Non-taxed Sources (i.e. Exclusions from Sources)
                        1. Gifts, bequests, prizes & lottery winnings
                        2. Long term capital gains unless
                           1. Part of trade or business
                           2. Sale of corporate stock held as personal property
      2. Income from Other Worldwide (i.e. Non-German) Sources
         1. Taxation
            1. International
               1. Multinational (i.e. EU)
               2. Bi-Lateral
                  1. DTC's
                     1. Uni-Lateral
                        1. Tax Free Foreign Income
                           1. EStG §34(c)(5) Specific Employment Income when earned by DE Resident from Foreign Companies in Foreign Locations
                        2. Double Taxation Prevention i.e. Income earned by DE resident from Foreign Activities
                           1. Foreign Tax Act (i.e. AStG Außßensteuergesetz)
                              1. AStG §12, Gives Human DE Residents a Reduction in their DE Tax Paid based on Foreign Tax Already Paid on Foreign Income Earned via...
                                 1. EStG §34(c)Foreign Tax Credit re Foreign Tax Paid by DE resident on Foreign Income earned
                                    1. EStG §34(c)(1) Method 1: Maximum Limit Calculation re Foreign Tax Paid OR
                                    2. EStG §34(c)(2) Method 2: Straight Deduction re Foreign Tax Credit Allowed
                                 2. EStG Ordinance §68A
            2. Tax Avoidance Provisions
               1. Foreign Tax Act (i.e Außensteuergesetz)
                  1. AStG §1 re Human Individuals
                  2. Which Sections Apply? and what's the penalty?
                     1. AStG §2 - 5
2. Non-German Residents
   1. Income from German Sources
      1. Taxation
         1. International
            1. Multinational (i.e. EU)
            2. Bi-Lateral
               1. DTC's
                  1. Uni-Lateral
                     1. AO §1 Taxation on German Income Sources Only (i.e. limited liability)
   2. Income from Other Worldwide (i.e. Non-German) Sources
      1. Taxation
         1. International
            1. Multinational (i.e. EU)
            2. Bi-Lateral
               1. DTC's
                  1. Un-Lateral

Taxation of Legal Individuals

1. Resident German Legal Entities
   1. AO §1 Taxation on All Income Sources (i.e. unlimited liability)
      1. Income from German Sources
         1. Taxation
         2. Income from German Sources
            1. International
               1. Multinational (i.e. EU)
               2. Bi-Lateral
                  1. DTC's
                     1. Uni-Lateral
      2. Income from Other Worldwide (i.e. Non-German) Sources
         1. Taxation
         2. Income from German Sources
            1. International
               1. Multinational (i.e. EU)
               2. Bi-Lateral
                  1. DTC's
                     1. Uni-Lateral
         3. Double Taxation Prevention i.e. Foreign earned income owned by DE resident
            1. AStG §12 Gives Tax Credit for Legal Individuals: Tax Deduction of Foreign Tax Paid by DE resident on Foreign Income earned
   2. Tax Avoidance Provisions
      1. Foreign Tax Act (i.e Außensteuergesetz)
         1. Who does it apply to (i.e. Application)?
            1. AStG §1 re Legal Individuals
         2. Which Sections Apply? and what's the penalty?
            1. AStG §6 Benefits from the Transfers of Hidden Reserves
            2. AStG §7 - 14 Benefits from German Controlled Foreign Companies in Low Tax Countries
2. Non-German Resident Legal Entities
   1. Income from German Sources
      1. Taxation
         1. Income from German Sources
            1. International
               1. Multinational (i.e. EU)
               2. Bi-Lateral
                  1. DTC's
                     1. Uni-Lateral
   2. Income from Other Worldwide (i.e. Non-German) Sources
      1. Taxation
         1. Income from German Sources
            1. International
               1. Multinational (i.e. EU)
               2. Bi-Lateral
                  1. DTC's
                     1. Uni-Lateral

Taxation of Partners & Partnerships

1. German Residents
   1. Income from German Sources
   2. Income from Other Worldwide (i.e. Non-German Sources)
2. Non-German Residents
   1. Income from German Sources
   2. Income from Other Worldwide (i.e. Non-German Sources)

Permanent Establishments

1. Owned by German Residents
   1. Income from German Sources
   2. Income from Other Worldwide (i.e. Non-German Sources)
2. Owned by Non-German Residents
   1. Income from German Sources
   2. Income from Other Worldwide (i.e. Non-German Sources)

Tax Optimization Planning

1. Transfer Pricing
2. Thin Capitalization
3. Derivative Financial Instruments
4. International Re-organizations
5. Controlled Foreign Corporations
6. Inbound Corporate Acquisitions

Tax Accounting

1. Accounting