Next tax amendment bill is in the works

With a new Tax Amendment Act, the German government primarily wants to take into account various requests for changes from the states for which there was no time last year.

The Customs Code Amendment Act came into force at the turn of the year. For a long time, however, it looked as if this legislative project would not be completed in time before the end of the year, because the Bundesrat had submitted a long list of amendments to the law and actually wanted to send the law to the Mediation Committee to enforce them. The fact that the Bundesrat finally gave its approval shortly before Christmas is due to the fact that the Federal Government has declared that it will implement the Bundesrat's wishes in a separate amendment bill shortly after the turn of the year.

The time has now come for this promise to be kept. In February, the Federal Ministry of Finance presented a draft bill for a "Law on the Implementation of the Protocol Declaration on the Law on the Adaptation of the Fiscal Code to the Union Customs Code and on the Amendment of Other Tax Regulations". The content of the law is as unwieldy as its name and does not even take up all the wishes of the Bundesrat.

It remains to be seen whether a more catchy name can be found for the law now presented in practice. Among the proposals are "Annual Tax Act 2016" (which is hardly appropriate in view of other expected tax amendment laws this year) and "Customs Code Adjustment Act 2.0". In any case, whatever the law is called, it is expected to be approved by the Cabinet soon along with other tax amendment laws. However, the legislative process is not scheduled to be completed until the fall. At the moment, the law provides for the following main changes in tax law, most of which are to apply from 2016:

• Investment deduction: The investment deduction allows smaller companies to bring forward the depreciation volume for a planned investment. Previously, however, when applying for the deduction, it was necessary to specify, among other things, the function of the asset that was to be purchased or manufactured. In practice, this regularly led to problems if the tax office found the information too imprecise or if, in the opinion of the tax office, the subsequently acquired asset did not match the functional information. Therefore, this requirement will be deleted without replacement. In the future, deductions up to a maximum amount of 200,000 euros can be claimed without further details. In return, the deduction amount and the other notifications must be transmitted electronically in accordance with a standardized procedure.

• Concern clause: The transfer of shares in a company normally leads to the expiry of the remaining loss carryforward above a certain amount. However, in order not to make restructuring within a group unnecessarily difficult, there is an exception to this loss deduction restriction if the transfer takes place entirely within the group. This group clause is now being extended retroactively to January 1, 2010 to cover constellations that were not covered by the previous wording. Among other things, trading partnerships are now permitted as group entities.

• Contribution facts: With retroactive effect from January 1, 2015, various tax arrangements in connection with contributions will be eliminated. A tax-neutral restructuring without disclosure of hidden reserves is then only possible if the other consideration granted in addition to new company shares does not exceed 25 % of the carrying amount of the assets contributed or does not exceed 300,000 euros. If these limits are exceeded, the hidden reserves are disclosed on a pro rata basis.

• Electric vehicles: There is a clarification regarding the private use of company electric or hybrid vehicles that is intended to prevent an unintended interpretation of the provision. When applying the logbook method, the pro rata depreciation must be reduced by the flat-rate reduction for the battery system in order to determine the withdrawal value for private use, provided that the battery system was not leased.

• Capital gains: Banks will now be required by law to apply the tax authorities' legal interpretation to the final withholding tax. This counteracts a ruling by the Federal Fiscal Court that could lead to inconsistent application of the tax. If an investor has a different legal interpretation, he will therefore always have to fight this out with the tax office in the future. In addition, only investors with unlimited tax liability will be able to submit an exemption order in the future. An earlier amendment had led to an unintended extension to investors with limited tax liability.

• Domestic term: The definition of the term "domestic" for income tax purposes is extended to include all taxing rights deriving from the UN Convention on the Law of the Sea. This means that, in addition to offshore energy production, commercial fish farming, the exploitation of mineral resources and other commercial activities in the high seas to which Germany is entitled are now also covered by the unlimited tax liability.

• Inheritance tax: In the future, the heir or donee must also provide the tax identification numbers of the persons involved in the acquisition when reporting. A corresponding adjustment will be made for custodians and administrators of assets, insurance companies, as well as courts, authorities and notaries. In addition, in the case of an inter vivos gift, both the donor and the donee will in future be parties to the proceedings in the assessment procedure, even if the donor assumes the gift tax.

• Other changes: The Act also contains a whole series of other changes, ranging from editorial adjustments to comprehensive changes for special constellations. For example, the partial income procedure for profit shares from provident funds is excluded - in conjunction with other changes for provident funds. There is another change in the business identification number, which has still not been introduced. The real estate transfer tax liability following an indirect change in the shareholder structure will again be determined depending on the company form. There are also some changes in valuation law.

The bill also provides an outlook on further changes in tax law that are planned for this year or are still under consideration. This is intended to meet further wishes of the federal states that have not yet been addressed by the current law. Accordingly, three further packages of amendments are already in preparation:

• Investment taxation: In the summer, the ministry plans to present a draft law on the reform of investment taxation. This will also include new rules on the tax treatment of capital gains from free float shares.

• Hybrid designs: Since January, a federal and state working group has been considering measures to neutralize the effects of hybrid tax arrangements. However, there is not yet a timetable for a legislative procedure here.

• Modernization: As part of deliberations on modernizing the taxation process, various proposals by the Bundesrat are to be implemented or at least examined. These include a right of inspection for municipalities in the case of trade tax, greater influence of the Länder on the collection sector, and self-assessment in tax assessment. There is no timetable for this package yet either.

However, the Federal Ministry of Finance has not accepted all the wishes of the Bundesrat. In particular, the government is critical of the desired change in the valuation of non-cash benefits. This means that the exemption limit of 44 euros for non-cash benefits will continue to apply when vouchers are granted.