Germany: Tax treaty override, loss limitation | KPMG | GLOBAL

Germany: Tax treaty override, loss limitation, earnings stripping rules

Germany: Tax treaty override, loss limitation

The KPMG member firm in Germany has prepared a report discussing the following developments and topics.


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  • The Federal Constitutional Court (BVerfG) issued a decision finding that a provision of German tax law (EStG) is compatible with the German Constitution, despite the fact that the tax law provision has an overriding effect over tax treaty provisions. 
  • The General Court of the European Union issued a judgment in February 2016 that dismissed two actions brought against the EC’s decision to qualify the “turnaround exemption clause” in German corporate income tax law (KStG)—i.e., the clause that provides for an exemption from the loss limitation rules in instances of detrimental change in ownership—as “inadmissible state aid.” 
  • The Federal Tax Court (BFH) referred a question to the Federal Constitutional Court as to whether the earnings stripping rules are constitutional.
  • A draft bill for promoting the construction of new rental apartments was published. The incentives would provide for time-limited, special depreciation for the acquisition or construction of new residential rental buildings in certain “tight market” areas.
  • The government adopted general administrative guidance on the application of corporate income tax law (corporate income tax guidelines 2015) with changes to the draft from 2015 concerning: third-country mergers and the scope of tax groups.
  • The Federal Tax Court (BHF) issued a decision concerning securities lending, and held that the beneficial ownership remains with the lender when merely a formal legal position is created for the borrower that allows that person to formally receive tax-exempt dividend payments and simultaneously generate tax-deductible business expenses (compensation payments and lending fees) in order to enjoy the tax advantages.
  • New tax treaties that have entered into force are applicable since 1 January 2016 include the treaty with the Philippines, with France, with the United Kingdom, with Ireland. The tax treaty with China is pending the exchange of the instruments of ratification, and a Protocol to amend the tax treaty with the Netherlands was signed in January 2016.


Read a March 2016 report [PDF 359 KB] prepared by the KPMG member firm in Germany: German Tax Monthly (March 2016)

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