Betriebsstättenbesteuerung

VDMA 2009
160 pages

ISBN 978-3-8163-0568-2

Author:
Dr. Stefan Bendlinger

The cross-border activities of German entrepreneurs have tax consequences in at least two countries. While companies with their registered office or place of management in Germany are subject to unlimited tax liability, the presence of the entrepreneur required in the course of plant construction abroad gives rise to tax concerns in the project country. Double taxation agreements (DTAs) that Germany has concluded with more than 90 countries limit these desires to the extent that a taxing right of this country is only maintained if the entrepreneur establishes a permanent establishment there. The concept of a permanent establishment is therefore the central concept for machinery and plant manufacturers when it comes to determining in which country they have to pay tax on their income. Developing and emerging countries are increasingly trying to interpret this concept of a permanent establishment very broadly. German entrepreneurs are therefore very quickly faced with the situation of establishing a permanent establishment abroad in the course of their activities, with the corresponding administrative consequences and tax burdens.
Contents:
1. International mechanical and plant engineering
1.1. Portrait of an industry
1.2. Range of services in mechanical and plant engineering
1.3. Plant engineering a sui generis tax case
2. The income tax environment in the international project business
3. Forms of cooperation in the international project business
3.1. The plant construction contract
3.2. General contractors and subcontractors
3.3. The consortium
3.3.1. The external consortium
3.3.2. The internal consortium
3.3.3. The consortium in international tax law
3.4. The consortium
3.4.1. The consortium agreement
3.4.2. The consortium in international tax law
3.5. The joint venture
3.6. Build Operate Transfer models (B.O.T.)
4. Contract types
4.1. Turn key contracts
4.2. Component sales
4.3. Service contracts
5. The relevance of the concept of a permanent establishment
5.1. The permanent establishment in German tax law
5.2. Territorial delimitation of national tax claims
5.3. Intentional and unintentional permanent establishments
6. Fundamentals of the law of double taxation agreements
6.1. Position of DTAs in the German legal system
6.2. Meaning and purpose of double taxation agreements
6.3. Interpretation of double taxation agreements
6.4. The significance of the OECD as an interpreter of DTA law
7. The permanent establishment in DTA law
7.1. A historical outline of the permanent establishment concept
7.2. International treaty models
7.3. The permanent establishment concept in the OECD Model Tax Convention
8. The fixed place of business
8.1. The business facility
8.2. The geographical link
8.3. Power of disposal over business facilities
8.4. Establishment of a permanent establishment through a physically fixed presence
8.5. Mere activity does not constitute a permanent establishment
8.6. Business activity in the business facility
8.7. Provision of assets and labor
8.8. Contract processing constituting a permanent establishment
8.9. The object of the activity as a permanent establishment
8.10. The temporal link
8.11. Various activities in one country
8.12. Short-term but recurring activities
8.13. Start and end of a fixed place of business
9. Services and consultancy services as a permanent establishment
9.1. The services permanent establishment in the OECD Model Tax Convention
9.2.1. Traditional interpretation
9.2.2. Optional supplementary element in the Commentary on the OECD Model Tax Convention
9.2. The services permanent establishment in the UN Model Tax Convention
10. Establishment of a permanent establishment through e-commerce
11. Prima facie permanent establishments
12. Construction work and assembly as a permanent establishment
12.1. The relationship between Art. 5 para. 1 and 3 OECD Model Tax Convention
12.1.1. The fiction theory
12.1.2. The explanation theory
12.2. Definition of construction work and assembly
12.3. Planning and supervision services
12.4. The twelve-month period
12.4.1. Start of the period
12.4.2. Interruption/inhibition of the running of the period
12.4.3. Award of work in construction lots
12.4.4. End of construction or assembly
12.4.5. Subsequent improvement work and rectification of defects
12.4.6. after-sales services
12.4.7. employment of subcontractors
12.5. permanent establishment by virtue of responsibility in the case of total delegation
12.6. multiple construction works in parallel or in succession
12.6.1. avoidance of abusive arrangements
12.6.2. economic and geographical unit
12.7. joint construction and assembly
12.8. creation of a permanent establishment through production supervision
12.9. services in connection with construction and assembly
13. Exploration constituting a permanent establishment
13.1. Exploration for and extraction of mineral resources
13.2. Exploration for and extraction of mineral resources on the seabed
14. Sea and inland waterway vessels as operating sites
15. Transportation facilities as operating sites
16. Auxiliary business premises
16.1. Preparatory and auxiliary activities
16.2. The negative catalog
17. Representative permanent establishments
17.1. The dependent representative
17.2. The independent representative
17.3. Affiliated companies as permanent establishments
18. The freelancer permanent establishment
19. Foreign income in German tax law
19.1. The global income principle
19.2. Causes of double taxation
19.3. Unilateral measures to avoid double taxation
19.3.1. Offsetting foreign taxes
19.3.2. Foreign taxes as a business expense
19.3.3. Lump-sum German tax
19.4. Tax relief in the case of double taxation agreements
19.4.1. exemption method with progression proviso
19.4.2. tax exemption with activity proviso
19.4.3. the credit method
19.5. symmetry principle for losses from DTA permanent establishments
19.5.1. the legal situation in Germany
19.5.2. the case law of the ECJ
19.5.3. utilization of final permanent establishment losses
20. Allocation of taxing rights in the German DTAs
20.1. Determination and delimitation of profits
20.2. The allocation standard for corporate profits in DTA law
20.3. Prohibition of the taxation of profits from supplies
20.4. The OECD's foreign separate entity approach
20.4.1. Inconsistent understanding of Art. 7 OECD-MA
20.4.2. The permanent establishment as an independent enterprise
20.4.3. Delimitation of profits in two steps
20.4.4. Allocation of functions, assets and risks
20.4.5. Profit-realizing internal transactions
20.4.6. Limits of the FSE approach in plant construction
20.5. The relevance of tax evidence from abroad
20.5.1. No consistency between domestic and foreign permanent establishment results
20.5.2. Subject-to-tax and fall-back clauses
21. Methods for determining the results of permanent establishments
21.1. The direct method
21.2. The indirect method
21.3. Mixed methods for construction and assembly
22. Special features of profit allocation in international mechanical and plant engineering
22.1. Mixed methods for construction and assembly work
22.2. The cost key method
22.2.1. The total order result as the basis for allocation
22.2.2. Order income statement as a basis
22.2.3. Causation-based allocation of the project result
22.2.4. The cost key method in practice
22.2.5. Criticism of the cost key method
22.2.6. The risk key method
22.2.7. The sales key method
23. International comparison of the determination of permanent establishment earnings
24. Tax risk management in plant construction
24.1. Beware of withholding taxes
24.2. Contractual tax clauses
24.3. Avoiding permanent establishments by hiring out workers
24.4. 10 tips for minimizing tax risks in international project business