s
1.4.1 Definition of taxes and ancillary charges
Taxes: Monetary payments that are not compensation
for specific services and collected by a public law entity (solely for the
purposes) of earning revenues
Ancillary charges: deferral fee, late-filing fee,
late-payment fee, interest, coercive fee, expenses, fees for not complying with
transfer pricing documentation requirements
1.4.2 Fundamental principles
Taxation according ability to pay: Taxes are assessed according to the
individual’s ability to pay and on business income earned
(no) retrospective taxation: The tax charge arises at the end of the
assessment period. All tax laws can be changed until then (in principle)
Equality: Examples: No taxation according to
nationality; taxation does not depend on whether income is legally or illegally
earned; no taxation if the state cannot guarantee that (basically) all
taxpayers comply
Consistency Examples: No taxation of the same income
with both gift tax/inheritance tax and income tax; tax rates should not depend
on the sources of income
Legality: Claims shall arise from the tax
debtor-creditor relationship as soon as the matter to which the law attaches
liability for payment has occurred
Whenever there is a certain fact pattern,
which the law considers to be a taxable event, the tax charge comes into
existence. In most cases, this cannot be reversed
1.Concepts in taxation
2.1 Excursus: Types
of income under German law
– Income from dependent services (employment
income)
– Investment income (dividends, interest, capital
gains derived from shares and bonds)
-Rental
income
– ‘Other’ income (pension payments, annuities)
– Income from independent services (self-employed
individuals)
– Farming
& forestry income
– Business
income
Definition of direct taxes: -The taxpayer is identical with the economically burdened person
– Individual ability to pay is decisive
– Difficult administration, complex determination of tax base
2 .Definition of indirect taxes
-The taxpayer and the economically burdened
person are not identical (at least in theory; that principle is being eroded)
— The taxpayer and the economically burdened
person are not identical (at least in theory; that principle is being eroded)
– Easier to administrate (at least in theory, that
principle is also being eroded)
Relevant direct taxes for purposes of
business taxation:
– (personal) income tax (with a maximum marginal
tax rate of 45%)
-.corporate income tax with a flat rate of 15%
– solidarity surcharge of 5.5% on the personal
income tax charge or corporate income tax charge
– trade tax with rates between 10% and 18%
2.3Unlimited taxation/limited taxation
Definition of unlimited taxation:
The taxpayer is taxed on his/her/its worldwide income, namely.
– Individuals based on their place of residence or their habitual place of
abode
DEFINITION OF RESIDENCE (sec. 9 general fiscal code)
– Persons shall be resident at the place at which they maintain a dwelling
under circumstances from which it may be inferred that they will maintain and
use such dwelling
Definition of habitual place of abode (sec. 9 General
Fiscal Code)
persons shall have their habitual abode at the place at which they are present
under circumstances indicating that their stay at that place or in that area is
not merely temporary. An unbroken stay of not less than six months’ duration
shall be invariably and from the beginning of such stay regarded as an habitual
abode in the territory of application of this Code; brief interruptions shall
be excepted. The second sentence shall not apply where the stay is undertaken
exclusively for visiting, recuperation, curative or similar private purposes
and does not last more than one year
– Partnerships based on the place of where the business is carried on
Limited taxation:
– The taxpayer is not resident in Germany or does not have its statutory seat in Germany
– Hence, Germany only has a right to tax to the extent that the income is connected with Germany; i.e. Germany’s right to tax is limited (hence limited taxation)
– NB: The taxpayer is probably a tax resident of another country and subject to tax on the worldwide income in that country; i.e. there can be double taxation
– The necessary connection is defined in the law (“nexus”)
Limited taxation of business income is based on two
concepts; viz – The concept of a permanent establishment, or
– the concept of a permanent representative