International taxation

Companies that do business internationally need the right group structure. From the tax perspective, issues of financing, the deductibility of interest, the treatment of licences, withholding taxes, the use of losses, retained earnings and possibilities for withdrawing profits all play in important role. Alongside complex local legal issues, the interplay of foreign and German tax legislation is of relevance here and requires expertise. For example, cross-border restructuring during a merger or division raises many questions. Together with our colleagues in the Grant Thornton network, we ensure that restructuring takes place with as little effect on tax as possible and avoid tax risks.

Groups resident in Germany do business across the globe. German foreign tax law has high requirements to ensure that profits made abroad are taxed properly. So German taxation can be triggered by foreign profits if the income abroad is classified as passive income and is only taxed there at a low level. This can affect interest and licences, but also income from trading and services. Besides complex issues of material law, declaration and compliance duties, which can potentially result in sanctions, also have to be observed. We guide businesses through assessing and mitigating the risks of controlled foreign corporation issues and ensure compliance with all the necessary duties. 

Breaking into new markets and locations also requires precise analysis of the local tax possibilities. This means questions about the tax of the legal structure in question (corporation, partnership, permanent establishment, etc.) have to be clarified according to local law, but also in interplay with German law. The company’s function, e.g., as a holding company, or production/sales company or financial company, has to be taken into account here and evaluated for tax. Typical issues for holding and financing companies include withholding taxes, the taxation of interest and dividends and potential exit solutions. We help businesses to successfully break into new markets and advise them on selecting location and legal form, in collaboration with our colleagues in the international Grant Thornton network.

Withholding taxes are a means of taxation employed worldwide to tax foreign companies’ domestic activities. Germany levies withholding taxes in particular on royalties, dividends and other certain kinds of investment income. This threatens foreign companies doing business in Germany with an additional tax liability although in many cases a double taxation agreement with the payment recipient’s home country excludes Germany’s right to impose taxes. We have been successfully helping international businesses with examining and observing the complex German exemption regulations and associated requirements for many years.