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International Tax Update: Recommendations of the BR Committees on the Implementation of ATAD

Recommendations of the BR committees on the 1:1 transposition of the ATAD into national law of 28.09.2020

Janneke Speetjens

Janneke Speetjens

Attorney-at-law and tax consultant

On September 28, 2020, the recommendations of the Bundesrat committees on the Annual Tax Act 2020 (JStG 2020) were published. Part of these recommendations is, among other things, a (for the time being at least) 1:1 implementation of the ATAD into national law.

On September 28, 2020, the BR committees expressed their views on the implementation of the ATAD in national law as part of the discussion of the Annual Tax Act 2020. With the ATAD, the EU aims to set a European minimum standard of measures to combat tax avoidance. Implementation into national law was scheduled by December 31, 2018, or December 31, 2019. It was not until December 10, 2019 that the German Federal Ministry of Finance published an initial draft bill (see our Website contribution), which was followed by a second draft on March 24, 2020.

The BR committees are now calling for the ATAD to be transposed "1:1" into national law as a first step; this is not least to prevent legal action against Germany by the EU Commission. In concrete terms, this means that in a first step it is proposed in particular to implement the regulations on hybrid structures and on the taxation of taxable profits. Two - welcome - points of the Bundesrat's recommendations should be highlighted:

The low tax threshold of Section 8 (3) AStG, currently 25%, is to be lowered to 15% in line with the minimum requirement of the Directive. Art. 7(1)(b) ATAD provides for a minimum rate in the amount of half the body tax rate. The now recommended rate of 15% - including the additional trade tax incurred in Germany - corresponds approximately to half the domestic corporate tax rate.
The lowering of the low-tax threshold is urgently overdue, as a large number of industrialized nations have lowered their tax rates for companies in recent years, which would mean that almost all foreign countries would qualify as low-tax jurisdictions. In addition, with the now reduced tax rate, a crediting of higher foreign taxes also on the trade tax or, however, overcharges due to crediting losses can be avoided.

The second recommendation concerns the harmful - i.e. leading to passive income - participation of related persons. The amendments planned in the draft of 10 December 2019 provided for an extension of the scope of these related parties to taxpayers in the EU/EEA area. This is now to be adjusted again in favor of the - already existing - tax liability in Germany, as already proposed in the second draft bill of March 24, 2020. This recommendation is also to be welcomed, as it would otherwise lead to an extension of the scope of application of the attribution taxation to all EU and EEA group companies.

The disputed issues in the political discussion on the draft of the ATAD Implementation Act to date regarding regulations that are not directly required by the ATAD should be put on hold for the time being. This concerns the originally proposed amendments to Section 6 AStG (exit taxation for private capital shares) and Sections 1 to 1b AStG (transfer pricing).

It remains to be seen whether and in what form the recommendations will find their way into the final law. In any case, they represent a step in the right direction.