On August 16, 2023, the German federal cabinet approved the government draft bill to implement Council Directive (EU) 2022/2523 to ensure global minimum taxation and further accompanying measures (Minimum Tax Directive Implementation Act - MinBestRL-UmsG). The bill mainly contains the draft for a new law to implement the EU Minimum Tax Directive (Minimum Tax Act - MinStG) in Germany and also provides for further relevant changes to tax law.
Minimum Tax Details
The minimum tax is stipulated by the MinStG. It is an independent income tax in addition to domestic income taxes.
Taxpayers of the MinStG are business units established in Germany that belong to a group of companies reporting annual sales of at least €750 million in the consolidated financial statements of the parent company in at least two of the four fiscal years immediately preceding the respective fiscal year. Several such business units form a so-called minimum tax group.
The taxable period of the minimum tax is the calendar year. The minimum tax arises with the end of the calendar year in which the fiscal year of the respective taxpayer(s) ends.
The components of the minimum tax are the primary supplementary tax (§§ 8 ff MinStG-E), the secondary supplementary tax (§§ 10 ff MinStG-E), and the national supplementary tax (§ 86 MinStG-E).
Calculating Minimum Tax
To calculate the minimum tax, the minimum tax total profit or loss of the respective business unit is assessed first (§§ 15 - 41 MinStG-E). The basis of the total profit or loss is the minimum tax net profit or loss for the respective year based on the consolidated financial statements (using the accounting standards applied therein) of the ultimate parent company. This is modified by additions and deductions (e.g., deduction of certain dividend income and addition of total income tax expense) and thus converted into the minimum tax total profit or loss.
Next, the adjusted recognized taxes are determined. The starting point is the taxes recognized in the financial statements, which in turn must be adjusted for certain items (e.g., deduction of tax expenses that are not expected to be paid within three financial years (§§ 42 - 50 MinStG-E)).
Out of this the effective tax rate is determined. If it is lower than 15%, a tax increase amount is incurred.
Tax Returns and Reports
The "group leader" of the minimum tax group is liable for the minimum tax. In principle, this is the ultimate parent company if domiciled in Germany, or otherwise, it is a business unit determined by such parent company and domiciled in Germany.
In principle, the group parent must file a tax return within 15 months of the last fiscal year end of a taxable business unit ending in the respective taxable period, and pay the minimum tax amount within one month thereafter (§§ 90 - 92 MinStG-E).
In addition, each taxpayer must submit a so-called minimum tax report to the Federal Tax Office. This obligation does not apply if, in the case of several taxpayers, a business unit submits the minimum tax report on behalf of the other taxpayers, or if the minimum tax report was submitted by the ultimate parent company (or a business unit commissioned by it) in its respective state of domicile and this state has agreed to the automatic exchange of information on minimum tax reports with the Federal Republic of Germany (§ 73 f. MinStG-E).
Recognition and Disclosure in Financial Statements
To accompany the introduction of the minimum tax, an exception to the recognition of deferred taxes is to be introduced in the German Commercial Code—in line with international accounting standards—if these deferred taxes result from the application of domestic or foreign minimum tax laws.
In addition, a disclosure requirement is to be introduced in the notes to the financial statements—for the first time in relation to fiscal years ending after December 30, 2023—with regard to the actual tax expense of domestic and foreign minimum tax laws.
Reduction in Tax Rates for CFC Purposes
The complete deletion of the license barrier regulation (§ 4j EStG), which was still planned in the draft bill for MinBestRL-UmsG, has not been retained. Instead, the "minimum tax rate" is now to be reduced from 25% to 15%, starting in the 2024 tax year, and the calculation of nondeductible expenses is to be adjusted accordingly (§ 4j (2) sentence 1, (3) sentence 2 EStG-E).
Also for the purposes of the taxation of controlled foreign corporation (CFC) income, a tax rate of 15% (currently 25%) is to be used in the future to assess the existence of low taxation from the 2024 tax year onward (§ 8 (5) AStG Draft).
Exit Taxation
In addition, from the 2025 tax year onward, notifications by the taxpayer with regard to exit taxation (§ 6 (5) AStG-E) and declarations on the separate determination of taxation on CFC income (§ 18 (3) AStG-E) must be submitted electronically to the tax office.
In the future, a deferral of the exit tax amount granted under the previous version of the AStG (until June 30, 2021) is also to be revoked if profit distributions and/or capital repayments are made by the respective participation and these exceed 25% of the fair market value of the participation at the time of the exit. This tightening is to apply immediately on the day after the cabinet resolution on the amendment law, i.e., as of August 17, 2023.
Trade Tax Liability on CFC Amounts
The abolition of the trade tax liability on CFC amounts (§ 7 sentence 7 - 9 GewStG), which was still envisaged in the draft bill, was not retained in the government bill.
The Bundesrat will issue its opinion on the draft law at its meeting on September 29, 2023. The legislative process is to be completed by the end of 2023 in accordance with the requirements of the directive.
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