Germany: Add-back rules under the trade tax | KPMG | GLOBAL

Germany: Add-back rules under the trade tax

Germany: Add-back rules under the trade tax

Germany’s Federal Constitutional Court (BVerfG) determined that a request from a lower court, for judicial review of the trade tax add-back rules was “inadmissible.”


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The German trade tax applies to any commercial business activity in Germany, and the trade tax assessment is based on the amount of trade income. For these purposes, “trade income” is determined by reference to the profit from commercial business activity as determined by the income tax law or corporate tax law, and modified by certain add-backs and deductions. The add-backs can include amounts of debt remunerations (interest on loans) as well as rent and lease payments for fixed or movable assets. 

In the case before the court, a German limited liability company (GmbH) operated several filling stations and, in 2008, incurred expenses for debts as well as for rents and leases for which the taxpayer added back partial amounts to its profits under the add-back rules of the trade tax. The taxpayer, however, asserted that these add-backs were incompatible with the German Constitution, and sought judicial review. A lower court (Hamburg) found the add-back rules were unconstitutional, but suspended its proceedings pending review by the Federal Constitutional Court which ultimately rejected the review request.

Concerning the constitutionality of the trade tax add-back rules, there are other proceedings pending before the Federal Tax Court (BFH).


Read a May 2016 report [PDF 370 KB] prepared by the KPMG member firm in Germany: German Tax Monthly


Other topics discussed in this report concern:

  • The treatment of dividend payments within tax groups (intercompany dividend payments received by a controlled foreign company from a foreign company are, for trade tax purposes, not subject to the 5% charge—that is, the deemed non-deductible business expenses in the amount of 5% of the dividend payment)
  • Draft guidance from the Ministry of Finance on principles for the attribution of profits to permanent establishments
  • Tax treatment of a write-down of an intra-group loan receivable; the tax treaty principle of “dealing at arm’s length” under the OECD Model Tax Convention 
  • Currency losses resulting from the liquidation of a foreign lower-tier partnership may not reduce the trade income of the German upper-tier partnership, taxable in Germany
  • Payments made by a subsidiary residing in a third country may qualify as repayments of contributions

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