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On 2 August 2022, the tax authorities published a circular on the application of tax deductions under 50a of the German Income Tax Act (Einkommensteuergesetz – EStG) for remuneration from software development services. The BMF circular concerns cases in which German businesses develop software using businesses that are resident abroad.

In a surprise move as part of the third relief package, the federal government decided to begin implementation of internationally agreed global minimum tax on the national level now. This once more increases the relevance for German businesses coming with the scope of Pillar Two to get themselves prepared.

Many questions still remain unanswered in regulating how global minimum tax is to be implemented. Our update on the current situation of Pillar Two and an assessment of further developments.

In May 2022, the European Commission presented a draft directive to equal out the tax treatment of equity and debt, which allows for the deduction of notional interest on equity on the one hand, and contains a further limitation on interest deduction on the other.