GERMANY Law and Practice Contributed by: Michael Best, Gerald Herrmann and Jannis Lührs, POELLATH
ards around the use of shell entities by using a num - ber of indicators related to income, staff and prem - ises to detect entities that exist merely on paper. The implementation at the level of the member states was planned for 2023 so that the national regulations can apply from 2024, but the proposed directive has not yet been implemented due to the concerns of some member states. It is therefore unclear whether this directive will be completed/implemented at all. Moreover, on 11 May 2022, the EU Commission pre - sented another proposal for the alignment of the tax treatment of equity and debt under the so-called Debt Equity Bias Reduction Allowance (DEBRA) Initiative. The objective is to reduce tax incentives for debt financed investments and to incentive equity invest - ments by implementing a national interest deduc - tion on equity and a limited deductibility of interest expenses (deductibility is limited to 85% of interest expenses). Negotiations are currently temporarily sus - pended and may result in a limited reporting obligation only. In September 2025, it was decided that the Unshell Directive would no longer be pursued as a separate directive in the Council. However, once the Commis - sion has completed its ongoing analysis of the func - tioning of the DAC 6 Directive, it will be examined whether the objectives of the Unshell Directive can be achieved by clarifying or amending the DAC 6 Direc - tive. 9.3 International Tax There is public concern over whether the current applicable international tax law is able to keep up with the challenges of globalisation or if it enables tax avoidance and allows base erosion and profit shifting advantages. The discussion was sparked in 2012 by media reports of Starbucks avoiding taxes on a large scale in the UK and was extended to global IT firms and swept over other EU countries. Developments such as “the Luxembourg Leaks” and “the Panama Papers” particularly influenced public and political discussions on aggressive tax structures (such as intellectual property boxes) and underlying tax rulings, which led to tax rates of less than 5%. As a result, not only the German business and politi -
cal press but also the tabloids frequently reported on such developments. However, neither the BEPS pro - ject nor the implementation of its recommendations receives significant media attention. 9.4 Competitive Tax Policy Objectives As a strong export country, Germany does not pursue a competitive tax policy objective. In fact, Germany has already introduced anti-abuse and CFC rules to limit base erosion and profit shifting. As a result, Ger - many seeks to achieve international standards for fair and realistic tax competition. 9.5 The Competitive Tax System Germany does not have a competitive tax system, state aid or other similar constraints that might be particularly affected by anti-BEPS measures. 9.6 Hybrid Instruments and BEPS Implementation Hybrid instruments have mainly been used in Germany for cross-border financing. Germany has implement - ed a domestic anti-abuse rule (the “correspondence principle”) for interest income and dividend payments from hybrid instruments of foreign corporations, which is applicable as of the 2014 assessment year. Further - more, the very same correspondence principle has been considered in the EU Parent-Subsidiary Direc - tive. In line with the BEPS 1 Implementation Act, a separate regulation to prevent the double deduction of busi - ness expenses for partnerships has been introduced into German domestic law, effective from 1 January 2017. The recommendations of BEPS Action 2 have largely been incorporated into ATAD II. In the course of the implementation of the ATAD II regulations, in 2020 Germany enacted a law limiting the tax deductibility of business expenses in the case of hybrid arrangements. The limitation applies, inter alia, if: • expenses are recorded twice in two countries; or • an expense is deducted at the level of a German entity but the related income is not subject to taxa - tion in the foreign country due to a hybrid arrange - ment (or a hybrid legal entity).
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