date | theme

08. January 2021 | Double Taxation and Double Taxation Agreement

26. October 2020 | Overview of the OECD Model Agreement – OECD-MA as the basis for DTA

08. January 2021 | Overview of the most important articles of the OECD-MA

08. January 2021 | Double taxation without DTA: Business relations with countries without DTA (this contribution)

In principle, double taxation is avoided by double taxation agreements (DTA). However, it may happen that no DTA exists at the time of taxation or that the DTA has not been concluded in time. Fortunately, the legislature has created its own national regulations in order to avoid double taxation in such cases even without a DTA or to reduce its severity. On the one hand, this includes the credit method. On the other hand, the deduction of foreign taxes can also apply when taxing in Germany. However, the method to be used to avoid double taxation depends on some circumstances. In addition, both methods have their own advantages and advantages.

The Federal Republic of Germany has concluded agreements in the field of taxation with more than 200 countries and tax regimes worldwide. Most of them are concerned in particular with avoiding double taxation in the area of income taxes. Although almost all existing states are covered, there are still other regulations at national level to intercept a possible double taxation should no DTA apply. In this way, the legislator wants to ensure that double taxation is avoided as far as possible even in cases without a DTA.

There are two methods by which this goal can be achieved in principle. At the national level, double taxation is therefore avoided either by the credit or by the deduction method (§ 34c EStG).

2. double taxation without DTA: foreign tax crediting

2.1. Requirements for crediting foreign taxes

When it comes to applying foreign taxes to German income tax, the law (§ 34c (1) EStG) presupposes some requirements: