Rothenburg o. d. Tauber, Germany

Risk of German Limited Tax Liability Without Company Seat in Germany

By Brigitte Jakoby, Jakoby Dr Baumhof – Wirtschaftsprüfer Steuerberater Rechtsanwälte

The German Federal Fiscal Court (BFH) decided on 23 October 2018 that a company with a seat outside Germany becomes taxable in Germany if its manager has a private (second) home in Germany and is doing business for the company in Germany. In its decision, the BFH dealt with a limited capital company formed under the laws of Luxembourg. The business was conducted in Luxembourg by the managing partner. The business address in Luxembourg was also the private residence of the managing partner. But he also had a private residence in Germany and regularly visited the German suppliers in Germany.

Due to these regular and comprehensive business activities in Germany, and his private German residence, he was considered to be a permanent representative of the company in the sense of §13 Fiscal Code of Germany.

Consequently, the Luxembourg company had to pay taxes in Germany. An important requirement for setting up a representative’s permanent establishment is the consistency of the representative’s activity. In this respect, activity on a regular basis by the representative is an important indication. If a representative is active over a longer period, every week or several times during a month, in the country where the representative is residing, the company becomes taxable in this country.

The decision of the BFH can not only be put into the context of German national law but could affect the definition of a representative according to European Community Law as well. On the level of European Community Law, it is also discussed controversially, whether the body of a company can be its representative at the same time. So far, the decision of the BFH could be considered as a first step into a new jurisdiction on the level of European Community Law. Furthermore, it must be considered that the requirements for a representative’s permanent establishment were tightened by the OECD model agreement in 2017. According to this OECD model agreement, it is suffcient that the representative takes over an important role during the negotiation of contracts and that these contracts are routinely accepted without any major alterations by the company. He no longer needs the power to conclude the contracts. Therefore, the risk in order to establish a representative’s permanent establishment increases.

The status as member of a board does not prevent the existence of a permanent representative anymore. Consequently, the representative’s permanent establishment leads to a liability of the foreign company for limited corporation tax.


Brigitte Jakoby

Brigitte Jakoby

GGI member firm
Jakoby Dr Baumhof - Wirtschaftsprüfer Steuerberater Rechtsanwälte
Advisory, Auditing & Accounting, Corporate Finance, Law Firm Services, Tax
Rothenburg o.d.T., Ebersberg, Germany
T: +49 9861 9405 0
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W: www.jakoby-baumhof.de

Jakoby Dr Baumhof - Wirtschaftsprüfer Steuerberater Rechtsanwälte is a mediumsized interdisciplinary company located in the south of Germany, with offices in Rothenburg o.d. Tauber, located in Northern Bavaria, and Ebersberg, near Munich.

In 1987, Brigitte Jakoby started collaborating with her husband Eugen Jakoby, also a German Chartered Accountant and German Certified Tax Advisor. Since 1996, she has been one of the Senior Partners at Jakoby Dr. Baumhof.


Published: International Taxation Newsletter, No. 11, Autumn 2019 l Photo: Uwe Rieder

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