Federal Ministry of Finance publishes model for future double tax treaties

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Germany provides insight into its tax treaty negotiation policy.

The German Federal Ministry of Finance has followed the lead of the United States, Austria and Belgium and has published a model double tax treaty for future treaty negotiations. For the first time, the tax authorities phrase their ideas of a double tax treaty, thereby providing insight into the German negotiation policy on double tax treaty matters. Although the contents of each future double tax treaty will substantially be derived from specific negotiations, the model tax treaty gives reasons to hope for a higher level of planning certainty in an international context.

The new basis for negotiations mainly follows the OECD’s Model Tax Convention, but nevertheless contains several interesting aspects. Thus, it does not only identify the avoidance of double taxation as major goal of a tax treaty, but also that of double non-taxation. The integration of traditionally unilaterally used anti-abuse provisions within the treaty itself reflects the latter. E.g., dividends of German REITs or Investment Funds are to be excluded from concessions under a tax treaty with respect to dividends from a company in which another company holds a certain percentage (participation exemption, Schachtelprivileg). In the past, this exclusion was achieved by an unilateral treaty override within the provisions of the REIT Act. From a practitioner’s perspective, explicit treaty provisions are to be preferred over treaty overriding rules, their conformity with constitutional and international public law being highly contested.

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