GERMANY Law and Practice Contributed by: Alexander Gottstein, MTR Legal Rechtsanwälte
3. Taxation of Cross-Border Income 3.1 Income From Immovable Property DTAs generally allocate taxing rights over income from immovable property to the state in which the property is situated. Under domestic law, residents are taxed on such income worldwide, while non‑residents are taxed on German‑source rental income and relevant gains (among other things, through Section 49 EStG). The relief mechanism in the residence state (exemp - tion or credit) follows the applicable method article of the DTA. 3.2 Business Profits Under the common Article 7 OECD MTC approach (reflected in many DTAs), the business profits of a non‑resident enterprise are generally taxable in Ger - many only if the enterprise carries on business through a German PE. If a German PE exists, Germany may tax the profits attributable to that PE. Profit attribution follows domestic rules and treaty principles. For associated enterprises, the arm’s length principle is central; domestically, Section 1 AStG is the key provision. 3.3 Passive Income Germany levies withholding tax on certain Ger - man‑source payments – most notably on dividends, and in some cases also on royalties, depending on the domestic charging provision. DTAs typically limit withholding taxes through maximum rates or exemp - tions and require compliance with conditions and pro - cedures (eg, residence certificates, relief at source, or refund procedures). Because rates, definitions and protocol provisions differ from treaty to treaty, the relevant DTA articles (typically Articles 10, 11 and 12) and the applicable domestic relief procedure must be checked for each payment. 3.4 Capital Gains The taxation of capital gains is determined under domestic law but is frequently allocated or restricted by DTAs. Many modern DTAs include special rules for shares in “property‑rich” companies, allowing the situs state to tax gains where the value is derived pre -
dominantly from immovable property located there. Other gains are often allocated to the residence state. The specific treaty wording is decisive. 3.5 Employment Income DTAs typically follow the principle that employment income may be taxed in the state where the employ - ment is physically exercised (Article 15 OECD MTC). The 183‑day rule results in exclusive residence‑state taxation only if all the conditions are met (including the employer test and no bearing of remuneration by a PE in the work state). For remote‑work scenarios, two issues must be assessed: (i) whether taxing rights over employment income shift because the work is performed in another state; and (ii) whether the arrangement could create a PE for the employer. Under current German adminis - trative practice, an ordinary employee’s home office generally does not create a PE due to the employer’s lack of power of disposal; however, fact patterns may differ, for example, where the home office is used on a lasting basis as a fixed business facility of the enter - prise. 3.6 Other Income Income not covered by specific treaty articles falls under the “other income” provision (often Article 21 OECD MTC) or special articles. Whether Germany may tax depends heavily on the treaty wording (eg, exclusive residence‑state taxation versus retained source‑state rights). Therefore, “residual” items require particularly careful treaty analysis. 4. OECD/G20 Global Tax Reform 4.1 Pillar One – Amount B “Amount B” is an OECD simplification initiative intend - ed to provide a standardised arm’s length remunera - tion for certain baseline marketing and distribution activities. At OECD level, key deliverables include the February 2024 report and a consolidated report pub - lished in February 2025. Application is not automatic; jurisdictions must adopt/permit its use (effectively an “opt‑in” approach), and the detailed conditions are defined in OECD guidance.
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