German Ministry of Finance Publishes Revised Draft Bill for Global Minimum Tax Implementation

The German Ministry of Finance has released a revised draft bill regarding the implementation of the Global Minimum Tax. This draft bill aligns with the Organisation for Economic Co-operation and Development (OECD) Administrative Guidance and includes accompanying measures to simplify existing German tax rules. Interested parties have until July 21, 2023, to provide comments on the bill.

The revised draft bill introduces several significant changes, including a top-up tax compensation mechanism within the minimum tax group and the inclusion of provisions from the OECD’s Administrative Guidance. It also outlines penalties for non-compliance.

Accompanying measures have been proposed to align current German tax rules with the Global Minimum Tax. These measures include abolishing the German royalty deduction limitation, reducing the low-tax threshold for German controlled foreign company (CFC) tax purposes, and excluding CFC income from German trade tax.

The revised draft bill confirms the introduction of a minimum tax group comprising all German resident Constituent Entities. German Constituent Entities whose top-up tax amounts are allocated to the minimum tax group parent have a legal obligation to compensate the minimum tax group parent. This also applies to top-up tax refunds to the minimum tax group parent, which must be compensated by the latter to the Constituent Entities.

The draft bill includes provisions from the OECD’s Administrative Guidance, such as the inclusion of dividends from Portfolio Shareholdings in the computation of Global Anti-Base Erosion (GloBE) Income or Loss, the equity gain or loss inclusion election, the exclusion of a debt release from the computation of GloBE Income or Loss, and transitional rules for allocating taxes under Blended CFC Tax Regimes.

The draft bill outlines penalties of up to €30,000 per instance for failure to submit the minimum tax report correctly. However, penalty relief may be granted if the taxpayer proves reasonable justifications for late or incorrect submission.

The draft bill proposes changes to align existing German tax rules with the Global Minimum Tax. The German royalty deduction limitation rule would be abolished, the low-tax threshold for German CFC purposes would be reduced from 25% to 15%, and CFC income would be excluded from taxable income for Trade Tax purposes.

The Ministry of Finance has set a deadline of July 21, 2023, for comments on the draft bill. Following this period, a formal legislative procedure is expected to begin, and the bill may become law by December 2023.