Regret becoming a DBA

Mössner, Manfred Jörg

Case law of the BFH on the interpretation of double taxation agreements in 2002

RIW 2002, 294 (Issue 4)

I. Introduction From an international point of view, the rulings of the BFH on double taxation agreements are only noted in exceptional cases, as there is a lack of regular English-language publication. In substance, this is regrettable, as the case law of the BFH on double taxation agreements deserves special attention due to their quality and quantity. In 2002, the BFH did this again with a series of decisions, e.g. In some cases considerable range demonstrated. II. Progression reservation 1. Express authorization to use in the DBA is not required (IR 63/00) At the beginning, the important decision of the BFH of 19.12.20012I R 63/00, BFHE 197, 495, BFH / NV 2002, 584, RIW 2002, 403., is due on May 15, 20023I R 40/01, BStBl. II 2002, 660, RIW 2002, 798. a supplementary decision has been issued. With it, the BFH has achieved a significant turning point after decades of unsuccessful and recently hardly tenable case law practice. Schmidt / Seeger, EStG, 21st edition 2002, § 2 marginal no. 93. in conjunction with Section 32 b (1) No. 2 EStG. These regulations concern the taxation of persons who are only temporarily subject to unlimited tax liability in Germany during a calendar year. In both judgments, as far as is of interest here. Mössner, IStR 2002, 239, and Kippenberg, IStR 2002, 240., about the fact that a taxpayer was resident in Germany at the beginning of 1997 and earned income from non-self-employed activities during this time. In the course of the year he relocated abroad and was no longer self-employed there. According to Section 2 (7) in conjunction with Section 32b (1) No. 2 EStG new version, there are two legal effects in such cases: - The income received from within Germany during the period of non-residence and subject to limited tax liability is included in the taxation of unrestricted Tax liability included - e.g. B. Residence January to March, in May drawing dividends in Germany, and - taxation in Germany is carried out according to a progression rate that takes into account the income earned abroad - e.g. B. Residence and income January to April in Germany, May to December abroad. This has three tax effects: 1. Income that is earned abroad at a point in time at which there is no longer any connection to the home country is taken into account for taxation in the home country in the progression. Income with limited tax liability in Germany is taxed at the tax rate of world income. 3. Income with limited tax liability is taxed like unlimited taxable income. B) Decision This was already pointed out when this standard was introduced6 Cf. Mössner, IStR 1997, 225. that the change in the law would have far-reaching consequences, so that these should have been discussed in more detail in the legislative process. Both decisions make these far-reaching effects clear. The BFH rejects all concerns about these regulations. The decision of December 19, 2001 contains the basic statements of the BFH on the relationship between double taxation agreements and national law. The BFH has already failed to achieve this for decades7See the criticism Mössner, AWD 1968, 258, as well as in: Kirchhof / Söhn, EStG, as of March 2000, § 2 b EStG marginal no. 142 ff. And barely comprehensible, contradicting jurisprudence given up and the correct conclusions drawn convincingly from the scientific findings, which have long been undisputed. here Vogel, DBA, 3rd edition 1996, Art. 23 marginal no. 69 ff .; Mössner, in: Kirchhof / Söhn, EStG, as of March 2000, § 2 a A27 ff., D51 ff. The decision is therefore to be welcomed in the long term, even if, as one hears, a constitutional complaint against it is being considered. Such considerations are incomprehensible, because the BFH is now able to avoid a number of system breaks in its case law. To better understand the decision, a brief outlook is necessary. The topic is the question of how the exemption method of the double taxation agreements specifically affects domestic law. Mössner, in: Vogel: Basic questions of international tax law, 1984, p. 135 ff .; Lechner, in: Gassner et al., The methods for avoiding double taxation, Vienna 1995, p. 137 ff .; Vogel / Wassermeyer, Exemption in International Tax Law, 1996; Sutter / Wimpissinger, Exemption and Crediting Method in the Double Taxation Agreements, Vienna 2002, pp. 127 f., 157 ff. The agreements either contain the wording, as found in Art. 23 a of the OECD-MA, that the exempt income "to be exempted from taxation", or the wording used predominantly in the German agreements that they are to be exempted from the tax base. The RFH1019. 12. 1929 - I Aa 383/29, RFHE 26, 163; January 25, 1933 - VI A 199/32, RStBl. 1933, 478; June 26, 1935 - VI A 414/35, RStBl. 1935, 1358. followed the prevailing view in the 1920s that double taxation agreements allocate tax assets to the individual states for taxation. This usage of language was and is - even if it is found today and is plastic - imprecise. Both the concept of taxation and that of the allocation require explanation. The tax claim is a claim for payment of money by the tax creditor against the tax debtor. It is determined in its content (e.g. income tax 2002) and in its amount by the fulfillment of the offense within the meaning of § 38 AO. The »taxation of foreign or domestic income« therefore means nothing more than a factual link to a foreign or domestic income. Domestic issue. In accordance with Section 1, Paragraph 1 of the Income Tax Act (unlimited tax liability) in conjunction with Section 2, Paragraph 1 of the Income Tax Act (generating income within one type of income), domestic and foreign matters are subsumed under the relevant standards. The RFH understood the allocation of a taxation right, without explicitly describing it, to mean that the "coverage" of the tax standard was defined. If a tax asset was "allocated" to a foreign country, the relevant norm, e.g. B. Income from trade, are not applied if foreign facts existed. An actual connection abroad was therefore not possible in the case of exemption. As Klaus Vogel has made clear11 The spatial scope of the administrative law norm, Habil. 1965, passim., This affected the scope of the content of a norm, so that, in the opinion of the RFH, the exemption represents a norm of legal application. It was therefore logical that the case law of the RFH was understood in such a way that it was used in the DTA norms of conflict of law rules12 Bühler, Grundfragen des Internationale Steuerrechts, Amsterdam 1961, pp. 72, 134; see also Vogel (fn. 8), inlet no. 24 ff. Saw. According to this understanding, the norms of the double taxation agreement had the function of regulating the applicability of national tax law. In its decision of June 26, 1935, the RFH expressed this in such a way that a double taxation agreement divides the tax sources in such a way that the country of residence is responsible for total income taxation and that if that Double taxation treaties provide for an exception to this through an exemption, "the tax source in question is simply excluded from the tax authority of the country of residence, so it is no longer expected in any way there". The BFH initially followed this teaching1312. 8. 1960 - VI 300/585, Federal Tax Gazette. III 1960, 441 .. However, state practice then switched to agreeing the exemption only with the reservation of progression. The court failed to realize that this fundamentally changed the situation. 14S. Debatin, DStZ / A 1962, 9; ders., AWD 1969, 43. It continued to assume15BFH, November 9, 1966 - I 29/65, BStBl. III 1967, 88; October 4, 1967 - I 422/62, BStBl II 1968, 101; also BVerfG, March 10, 1971 - 2 BoL 3/68, BVerfGE 30, 272 ff. (281 f.). that the exemption completely exempts the income concerned from domestic taxation so that it is taken into account in the progression require express authorization in the agreement. So he decided that the progression proviso found its legal basis in the agreement itself. 16S. Fn. 16. Even showing 17 Cf. Mössner only (fn. 7). the contradictions of this line of argument did not influence him. If, according to this view of the court, the taxable goods that have not been "allocated" are completely excluded from domestic taxation, only the remaining, ie. H. the allocated tax assets are "taxed". How this happens is a matter of national law, which the legislature is in principle free to shape. A national standard would have been required for the progression proviso, which prescribes the application of a special tax rate for exempt foreign income. The BFH later found this out in 1817. 10. 1990 - I R 182/87, Federal Tax Gazette. II 1991, 136; 12. 12. 1990 - I R 176/87, BFH / NV 1991, 820; 12. 12. 1990 - I R 127/88, BFH / NV, 1992, 104. then also won, although he adhered to an authorization in the DBA. Today's understanding19Vogel (footnote 8), inlet no. 45 ff., Before Art. 6-22 para. 1 ff. It corresponds that the double taxation agreement only limits national tax claims in order to avoid double taxation (barrier effect). This means that on the basis of national law, which by virtue of state sovereignty autonomously justifies national tax claims and circumscribes their scope, a foreign matter is taxed. A DTA only limits its tax effects to the extent that double taxation occurs. A DTA is subordinate to national tax law. This also means that national tax law remains unaffected, unless the agreement contains any rules to the contrary. There are two ways of looking at exactly how the exemption is subject to progression provisions in national law, depending on how one understands the effect of the exemption itself. According to one perspective, the exempt foreign income is no longer included in the taxable income (Section 2 (4) EStG). However, it is taken into account when determining the tax rate (Section 32 a EStG). Article 32 b of the Income Tax Act is obviously based on this idea. It means that two taxpayers who earn the same "taxable income" (in the technical sense) are taxed with different tax rates: One - without exempt foreign income - according to the tax rate of the taxable income, the other - with exempt foreign income - at a higher tax rate. This different taxation for the same income (in the sense of the assessment basis of the tax) raises equality problems (Art. 3 GG), but can be objectively justified by the fact that the one taxpayer has a higher ability to pay because of his foreign income. The other perspective understands the obligation of the double taxation agreement to exclude the income from taxation in such a way that the foreign income is also included in the assessment base of the tax, so that the corresponding tax rate results automatically. At the same time, however, by applying the tax rate to the tax base in which it is (still) included, the foreign income leads to a corresponding tax that leads to double taxation. The »exemption« is then achieved by not levying the tax amount on the foreign income. This also corresponded exactly to the BFH's idea when it carried out a so-called shadow assessment when calculating the progression proviso.20S. Probst, in: Herrmann / Heuer / Raupach, as of April 1997, § 32 b EStG marginal no. 111 with further references In this respect, one speaks of a modified exemption theory.21 Vogel (footnote 8), Art. 23 para. 69 b. This point of view is more in line with the recognition that double taxation treaties only set limits on national taxation. For any form of taxation, whether unrestricted or limited, the national legislature does not need authorization from a double taxation treaty to tax domestically perform. With this legislative freedom, a national tax law can always apply a so-called progression proviso, unless a DTA expressly excludes this. The BFH now fully follows this view. He rightly emphasizes that the progression proviso corresponds to the principle of taxing everyone according to their ability to work. This is generally the case for persons with unlimited tax liability. For limited taxpayers it can be difficult to determine their world income, so that practical considerations could justify not taxing the limited taxable income according to the world income principle. However, as the court rightly points out, this restriction is "contrary to the system". If a state decides to eliminate this contravention of the system, it does not need an express permission standard within a DTA. Or to put it another way: How a state taxes the tax sources assigned to it by a DTA is not the subject of a DTA, provided that it is there is no discriminatory taxation or expressly limiting norms are contained in the DTA (e.g. reduction of withholding tax). With this question of competencies, the question of the equality of taxation must not be considered. Lüdicke, IStR 1999, 470; on aspects of European law see Benecke / Schnitger, FR 2002, 606 (610 ff.). or according to the tax attractiveness of the investment location. Mössner (footnote 5), 225 . This is not contradicted by the decision of the Federal Constitutional Court24BVerfG, March 10, 1971 - 2 BoL 3/68, BVerfGE 30, 272., which still followed the wrongful view of the RFH. In essence, it also concerned less the aspects explained above than an unforeseeable change in taxation practice in relation to Switzerland. No constitutional arguments can be derived from it against the new understanding of the BFH. Another question, however, is whether the regulation of Section 2 Paragraph 7 in conjunction with Section 32 Paragraph 1 No. 2 EStG has really been implemented consistently. on this Lüdicke (fn. 22), 471.2. Progression reservation when moving to another EU country (IR 40/01) The facts of the judgment of May 15, 2002 essentially correspond to those of the judgment of December 19, 2001, but with the difference that the taxpayer is domiciled in a Moved to another EU country (it was the Netherlands). Here, too, the First Senate confirms its amended case law. He rightly sees no impairment of the free movement of workers within the European Union in the application of the progression proviso. Indeed, one wonders how a disadvantage is to come about if the taxable income remaining domestically is taxed according to the tax rate of world income. There is simply no discernible "departure-related disadvantage". III. Professional drivers in international long-distance transport (I B 79/01) The non-self-employed are taxed at the place of work in accordance with Article 15, Paragraph 1 of the OECD-MA, which also determines German contractual practice. H. the place where the work is physically performed. An exception is made in Article 15, Paragraph 3 of the OECD-MA for shipping and air transport companies, which are taxed at the employer's registered office. This is supported by convincing reasons of practicability, since an employee in the shipping and air transport companies often crosses the borders and an assignment to the individual countries of activity would therefore be inexpedient. This applies in the same way to drivers in international long-distance transport, for whom frequent crossing of borders is also typical. Nevertheless, they are not included in the special regulation of Art. 15 Para. 3 OECD-MA. In the decision of January 22, 2002, the BFH2622. 1. 2002 - I B 79/01, BFH / NV 2002, 902. the analogous application of Art. 15 para. 3 OECD-MA to professional drivers rejected. The loophole required for an analog connection does not exist. In this regard, the court points out that the core idea of ​​the exception for the aviation and shipping companies is that the tax revenue of the employer's country of residence should not be reduced by deducting the wage payments to the employees of these companies without the corresponding wages in them States are taxed.The aim of this regulation is not to favor individual employees, but rather to keep an eye on the respective contracting state. Even if the standard should aim to protect the interests of the state, it does not lose its task of avoiding double taxation in the interests of the taxpayer. It is surprising, however, that the court deduces from this purpose of the standard that no analogy is possible. The same considerations can be made with drivers as with flight crews. The court stated that there was no need to treat all employees equally in international traffic. For the question of the non-equality of treatment of certain groups of people, it does not matter which aim a discriminatory norm pursues. The court then fails to provide an explanation as to why professional drivers are treated differently from ship and aircraft crew. IV. Computer as a permanent establishment (I R 86/01) As far as can be seen, for the first time a higher court has dealt with the question, which has been controversial for years, whether a computer could represent a permanent establishment275. 6. 2002 - I R 86/01, Federal Tax Gazette. II 2002, 683, RIW 2002, 807., but without actually taking a position on this question.28 Another is the 1st instance FG Schleswig-Holstein, September 6, 2001 - II 1224/97, EFG 2001, 1535.1. A domestic GmbH A operates as an agency for telecommunications. She installed one of her computers in rented rooms in Switzerland. This supplies Swiss customers with electronic data and programs. These corresponding programs are fed into the Swiss computer by another domestic company B, so that A leases the computer to B. No A staff was present at the Swiss location. The dispute was the domestic taxation of the income attributable to the Swiss computer. 2. The court referred the legal dispute back to the first instance for further clarification. It was disputed, but ultimately it remained unanswered whether the computer installed in Switzerland could represent a permanent establishment within the meaning of the DBA Switzerland. According to the DBA Switzerland, only active income from a Swiss permanent establishment is covered by the exemption in Germany. What active activities are is listed in Art. 24 Paragraph 1 No. 1 a DBA Switzerland. The simple transfer of economic goods within the framework of a rental or lease agreement is not mentioned. Income from a Swiss permanent establishment whose activity is limited to renting and leasing is therefore not exempt from German tax. This applies to real estate as well as to movable assets that are leased on a long-term basis. For example, due to the peculiarity of the case that the plaintiff only operated the computer and then let another company use it, the question of the existence of a permanent establishment was irrelevant. Since the programs sent via the computer are overseen by the other company, which is operated by the company as a whole, and A, on the other hand, only receives a fee for providing the computer, there is no active activity. 3. The actually interesting question of whether the operation of a computer can represent a permanent establishment and how the profit of the permanent establishment can then be determined is not answered by the decision. It has also not been decided whether the operation of a computer (setting up, waiting, etc.) leads to active activity on the part of the permanent establishment. In all DBAs with corresponding activity clauses, the question of a permanent establishment can therefore remain open as long as the computer is only rented out. It has not been decided whether the active operation of a computer (setting up, waiting, etc.) leads to active activity on the part of the permanent establishment. It is unclear whether - in the case of a location in a country with which no activity clause has been agreed in the DBA - in the case of simple leasing the existence of a permanent establishment would fail due to the landlord's lack of power of disposal. Thus, there is still no BFH decision on the conditions under which a computer represents a permanent establishment. If there is no exemption, double taxation is eliminated by means of crediting, for which it must then be determined what income the computer generates and whether they are foreign. For this, however, as § 34 d (1) No. 7 EStG makes clear, the existence of a permanent establishment is not necessary. In relation to countries with which double agreements exist, which do not make the exemption of permanent establishment income dependent on an active activity of the permanent establishment, it depends on the question of the existence of the permanent establishment. From a practical point of view, it is therefore regrettable that the BFH did not take the opportunity to present criteria that are decisive for the permanent establishment characteristics of a computer. But it is up to the court to rule on the cases before it. Special payments: interest on shareholder loans from domestic partners of foreign partnerships (I R 71/01) The treatment of special payments (Section 15 (1) No. 2 EStG) according to DTA has occupied the BFH several times. In the meantime it has been confirmed. Debatin / Wassermeyer DBA, status: May 2000, Art. 7 MA marginal no. 108 ff. With further information that shareholder loans from domestic shareholders of foreign partnerships lead to interest within the meaning of Art. 11 OECD-MA. The reverse case (domestic company with a foreign shareholder) was up for decision in 2002 without any final certainty being achieved here either. The facts on which the judgment of July 10, 200230I R 71/01, BFH / NV 2003, 236. is based appears complicated, but can be reduced to a simple constellation. A Swiss-based natural person (K) and an English corporation (L-Ltd.) were involved in a domestic AG & Co. KG as limited partners. For their part, K ​​and L were directly or indirectly involved in Swiss stock corporations, which took on management tasks for the domestic AG & Co. KG and received reimbursement of costs plus profit surcharge. The taxation of these payments in Germany was disputed. The payments made by the German KG to the Swiss AG will only become domestic as commercial income if they are incurred in the context of a domestic permanent establishment. In a very extensive interpretation of Section 15 (1) No. 2 EStG, the court sees payments as special remuneration for an activity. The court seems to be looking through the two Swiss AGs, because it states that the regulation on special remuneration cannot be circumvented by interposing a corporation. This sounds like § 42 AO. If one follows this, then the subject of the decision is how to treat special remuneration for activities of a partner in the service of his company, which a partner resident abroad receives from a domestic co-entrepreneurship. First of all, the treatment of the K resident in Switzerland must be considered. According to the special rule of Art. 7 Para. 7 DBA Switzerland, special allowances are to be classified as corporate profits within the meaning of Art. 7 DBA Switzerland. This regulation represents a special regulation in the circle of German double taxation agreements, which has taken over the German ideas about the special allowances in the agreement. Further prerequisites for a German tax law are the existence of a permanent establishment and the affiliation of the remuneration to this permanent establishment. Due to the insufficient determination of the FG, the BFH had to limit itself to general explanations. It indicates to the FG that it must determine what type of domestic permanent establishment was, what facilities were available and what work was performed in it for management services. It can be assumed that the Swiss AG had power of disposal over the corresponding premises in Switzerland to carry out their management duties. Then this would already result in business premises, as the BFH in the so-called hotel case31BFH, February 3, 1993 - I R 80-81 / 91, BStBl. II 1993, 462; see Mössner, in: Kirchhof et al. (Ed.), FS Klaus Vogel, 2000, p. 956 ff. It would be particularly interesting if the management AG could not dispose of the rooms, but were assigned to them by the domestic KG. This could then give the BFH the opportunity to further develop its »rooted« theory and, in particular, to clarify whether it still insists on the (unwritten) element of the power of disposal over domestic business facilities. As far as the English L-Ltd. Related special allowances, it cannot have been income from employment (Art. XI, Para. 2 DBA Great Britain), since a corporation cannot generate such income. The BFH therefore assumes the existence of corporate profits within the meaning of Art. III DBA Great Britain without further justification. The court does not even mention the possibility of self-employment within the meaning of Art. XI Paragraph 1 DTA. From this one must conclude that the court understands the concept of self-employed activity within the meaning of § 18 EStG as a matter of course, in the absence of its own definition in the DTA. Since this is commercial income, the same considerations apply as under the DTA Switzerland. 3. Due to the peculiarities of the facts and the regulations in the DTA Switzerland, the case was not suitable for the BFH to transfer its case law on the treatment of special payments under a DTA to the foreign partner of a domestic partnership. The reasoning of the court in its earlier decisions suggests that the same considerations also apply to a foreign partner in a domestic co-entrepreneurship. According to this, the loan that the shareholder grants his domestic co-entrepreneurship with the interest would not lead to domestic corporate income (= Art. 7 OECD-MA), but to interest income (= Art. 11 OECD-MA). If the foreign shareholder were to provide services to the domestic co-entrepreneurship, the article on self-employed or employed activity would consequently have to apply. If the BFH had seen it differently, it would not have based this decision on the special features of Art. 7 (7) DBA Switzerland for K and the property of being a corporation for L. So one cannot go wrong in assuming that the BFH also applies the respective special articles of the DTA to the special remuneration paid to foreigners by a domestic partnership. Dividends as permanent establishment income (I R 10/01) In a concise, yet fundamental and far-reaching decision, the BFH in its judgment of August 7, 200232 I R 10/01, RIW 2003, 155, BStBl. II 2002, 848. Made for many surprising statements.1. Domestic residents are involved in a Swiss partnership. This Swiss partnership in turn holds shares in a Swiss stock corporation from which it receives dividends. Since the Swiss partnership and the Swiss stock corporation complement each other economically in their activities, the participation in the AG is part of the business assets of the Swiss partnership and thus, from the German point of view, part of the permanent establishment assets of the German members of the partnership in Switzerland. Accordingly, applying the functional approach, the FG had affirmed that the shares in the AG actually belonged to the Swiss permanent establishment and accordingly counted the investment income as part of the foreign permanent establishment income that is not taxable in Germany in accordance with Art. 7 DTA Switzerland.2. The BFH did not follow this opinion. He also assumes that the shares in the Schweizer AG are Swiss permanent establishment assets of domestic residents. The participation in the Swiss AG is therefore subject to the regulation of Art. 7 DBA-Schweiz, i. H. Taxation in the country of the permanent establishment (Switzerland). In any case, this applies to participation as such. For the dividend income resulting from it, Art. 24 DBA-Schweiz, the method article, is relevant for the court. According to this, income originating from Switzerland is exempted if it is a profit within the meaning of Art. 7 DBA-Schweiz. This is true in principle. However, exemption is still tied to the fact that the profits come from "own activities of a permanent establishment", whereby these activities are further described as those of the manufacture, processing, processing or assembly of objects, the exploration and extraction of mineral resources, banking and Insurance business, trading or the provision of services with participation in general commercial transactions. The receipt of dividends does not belong to such “active income of the permanent establishment”. The court thus clearly separates active and passive income, with the latter also not being exempted as permanent establishment income. This obviously applies to the court in all cases in which a permanent establishment holds a stake. Whether the court really relies on the authors cited by it33Vogel for this view (footnote 8, Art. 23, paragraph 91; Hangartner, Steuer Revue 1986, 288 ; a. A. Wingert / Strohner in Flick et al., DBA Switzerland, Art. 24 No. 69; Grotherr in: Becker et al., DBA, Art. 24 Switzerland, No. 4, is not entirely certain does not deal with the so-called functional approach, which the cited authors are supposed to be concerned with. Here, considering the special circumstances of the case, one could certainly have assumed that, due to the close complementarity of the economic activities of the Swiss partnership and the Swiss AG, the related Dividends can certainly be counted as part of their own activities. Klaus Vogel34DBA Art. 23 No. 91. notes that income that a permanent establishment receives from participations is always passive, »also if the participation is held as a financial reserve for the active activities of the permanent establishment «. However, this does not rule out the fact that, due to the functional approach, there is a close connection between one's own activity and the payment of dividends. If one follows the decision, the question arises as to what significance then Art. 10 Para. 5 DTA Switzerland (= Art. 10 Para . 4 OECD-MA). According to this provision, the article on corporate profits rather than the dividend article applies if the recipient of the dividends resident in Germany maintains a permanent establishment in Switzerland and the participation in the Swiss corporation actually belongs to the permanent establishment. According to this provision, the taxation of dividends according to Article 7 only depends on the affiliation of the holding with the permanent establishment. Even if the BFH does not deal intensively with this standard, it can be assumed that it will be applied in the event of a dispute, as Article 10 (5) DBA Switzerland is clear in this respect. The dividend income is therefore foreign permanent establishment income. As a result, Switzerland has unlimited taxation rights in accordance with Art. 7 Para. 1 DTA Switzerland, so that the withholding tax restrictions of the dividend article (Art. 10 DTA- Switzerland) are not applicable.35So also Debatin / Wassermeyer (footnote 29), Art. 10 MA marginal no. 139. As the country of residence, Germany does not apply the exemption method to this dividend income from the foreign permanent establishment due to its passive nature, but rather the credit method in accordance with Article 24 (1) No. 2. As a result, Art. 10 para. 4 OECD-MA does not aim at the treatment of dividends in the country of residence, but rather removes the restrictions on taxation in the source country. The reservation of permanent establishments in the case of dividend articles opposes the so-called attractiveness of permanent establishments by only Holdings actually belonging to the permanent establishment may be subject to the permanent establishment article. This is also reflected in German law in Section 50 (5) sentence 2 EStG, according to which the tax for income subject to capital tax is not settled if it is operating income of a domestic company. Consequences in practice From the point of view of a resident, dividends from a Swiss stock corporation36 The same applies to profit distributions from other corporations. refers, this means: (1) The shares in the company do not belong to the assets of a Swiss permanent establishment: The dividend article (Art. 10 DBA Switzerland) applies. In Germany, the remuneration is subject to the half-income method, depending on the legal nature of the recipient, or it is not recognized in accordance with Section 8 b (1) of the KStG. (2) The shares belong to Swiss permanent establishment assets. Then they are taxed in Switzerland as corporate income in accordance with Article 7 OECD-MA. In Germany they are not exempted. This means that they are taxed as dividends, taking Swiss taxes into account.In the case of a natural person as the recipient, German tax should no longer be levied due to the half-income method; in the case of corporations, domestic taxation is waived because of Section 8 b (1) of the KStG If the shares belong to a permanent establishment asset in this country, the domestic remuneration is exempt in accordance with Article 23 in conjunction with Article 7 OECD-MA. If the resident is a corporation, the tax exemption already results from § 8 b Abs. 1 KStG.

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