The use of qualification conflicts in double taxation agreements in connection with hybrid arrangements

para. | paragraph

AfA | Decommissioning for Wear

AG | Aktiengesellschaft

AktG | Aktiengesetz

AO | Tax Code

Art. | Article

AStG | Foreign Tax Act

BeckHdB IFRS | Beck’s IFRS Handbook

BeckOK UmwStG | Beck’s online commentary on the conversion tax law

BeckOK WpHR | Beck’s online commentary on securities trading law

Founder

BFH | Bundesfinanzhof

BFHE | Collection of decisions of the Bundesfinanzhof

BGB | Civil Code

BGH | Bundesgerichtshof

BMF | Federal Ministry of Finance

BSGaV | Ordinance on the application of the arm's length principle to permanent establishments pursuant to § 1 (5) of the Foreign Tax Act

BStBl. | Bundessteuerblatt

i.e. | that is

D/NI | Deduction/Non-Inclusion

DTA | Double Taxation Agreement

this. | same

DStR | Magazine German Tax Law

ErbStG | Inheritance Tax and Gift Tax Act

EStG | Income Tax Act

ff. | following

FS | Festschrift

GmbH | Company with limited liability

half. | half sentence

HGB | Commercial Code

Edited | Editor

i.d.R. | usually

i.S.d. | in the sense of

i.V.m. | in conjunction with

Int. SteuerR | International Tax Law

IStR | Journal for European and International Tax and Economic Consulting

IWB | Journal of International Tax and Commercial Law

Cape | Chapter

GroupStR | Group tax law

KStG | Corporate Tax Act

lit. | letter

LLC | Limited Liability Company

MHdB GesR II | Munich Handbook of Company Law, Volume 2

No | Number

OECD-MA | OECD Model Convention on the Avoidance of Double Taxation in the Field of Income and Asset Taxation

Repo Transaction | Repurchase Agreement

RFH | Reichsfinanzhof

RFHE | Collection of decisions and opinions of the Reichsfinanzhof

RL | Directive

paragraph | recital

Rz | marginal number

s. | sentence

S. | page

s.o. | see above

SE | European Company, Societas Europaea

StuW | Tax and Economics – Journal for the entire tax sciences

Tz | sub-digit/text number

among others | and others

Corporate Tax Law

Judgment | Judgment

US | United States of America

v. | from

WirtschaftsStrafR-HdB | Handbook Business and Tax Criminal Law

WpHG | Securities Trading Act

Alber, Matthias/

Arendt, Hendrik/

Faber, Charlotte

Faber, Stephan

among others

(ed.) | Beck’sches Steuer- und Bilanzrechtslexikon, 62nd edition, Munich 2023

(quote: Editor, in: Beck’sches Steuer- und Bilanzrechtslexikon, Kap. paragraph)

Andresen, Ulf/

Kiesel, Hanno | White income does not justify an offence of tax offense, DStR 2011, 745

Baur, Sabrina/

Schrenk, Constanze/

Ullmann, Robert | Analysis of standards competition between § 4k EStG and §§ 7 ff. AStG, IStR 2023, 221

Brune, Jens/

Driesch, Dirk/

Schulz-Danso, Martin/

Senger, Thomas

(ed.) | Beck’s IFRS Handbook, 6th edition, Munich 2020 (cited: Editor, in: BeckHdB IFRS, § paragraph)

Dürrschmidt, Daniel/

Mückl, Norbert/

Weggenmann, Hans

(ed.) | Beck’s online commentary on the UmwStG, 24. Edition, Munich 2023 (quote: Editor, in: BeckOK UmwStG, UmwStG, § Rn.)

Fehling, Daniel/

Linn, Alexander /

Martini, Ruben | Linking Rules, IStR 2022, 781

Frogs, Gerrit

(ed.) | International Tax Law, 5th edition, Munich 2020 (cited: Edited, in: Frotscher Int. SteuerR, § Rn.)

Frogs, Gerrit

Matthias, Geurts

(ed.) | Comment on the Income Tax Act, Loseblatt, 234. Edition, Freiburg im Breisgau 2023 (quote: Bearbeiter, in: Frotscher/Geurts, EStG, § Rn.)

Gosch, Dietmar

(ed.) | Commentary on the Corporate Tax Act, 4th edition, Munich 2020 (cited: Editors, in: Gosch, KStG, § Rn.)

Grotherr, Siegfried | ATAD Implementation Act: Application and interpretation issues concerning the new prohibition on operating expenses according to § 4k EStG-E for hybrid designs, IStR 2020, 773

Gummert, Hans/

Weipert, Lutz

(ed.) | Munich Handbook of Company Law, Volume 2: KG, Edition, Munich 2019

(cited: processor, in: MHdB GesR II, § paragraph)

Gündisch, Stephan | Analogue application of agreements for overcoming qualification conflicts, IStR 2005, 829

Haase, Florian | Tax crediting for divergent income allocation and qualification conflicts, IStR 2010, 45

Herzig, Norbert | Hybrid Financial Instruments in National and International Tax Law, IStR 2000, 482

Heuermann, Bernd

Brandis, Peter

(ed.) | Brandis/Heuermann Income Tax Law, Volume 1: EStG, Loseblatt, Edition, Munich 2022 (cited: Editors, in: Brandis/Heuermann, EStG, § n.)

dies. | Brandis/Heuermann Income Tax Law, Volume 4: KStG, Loseblatt, Edition, Munich 2022 (quote: Editors, in: Brandis/Heuermann, KStG, § Rn.)

Hinz, Bogdan | Hybrid Design and Structural Implementation Deficit – Claims and Limitations of Administration, IStR 2020, 397

Hübner, Hendrik/

Jesic, Adrijan/

lamp, Nils/

Schildmann, Henning | Questions of doubt regarding the growth of limited partnerships on their limited partners, DStR 2023, 543

Jacobs, Otto H.

(gr.) | Jacobs International Corporate Taxation, 8th edition, Munich 2016 (cited: Editors, in: Jacobs Int.). Business Taxation, S.

Kaeser, Christian

(ed.) | Double taxation: DBA: On the 75th birthday of Prof. Dr. Dr. h.c. Franz Wassermeyer, 1st edition, Munich 2015 (cited: Editor, FS Wassermeyer, Chapter Rn.)

Kahlenberg, Christian | Seminar D: Hybrid instruments and entities, IStR 2019, 636

Kahlenberg, Christian/

Oppel, Florian | Anti-BEPS Directive: Extension to regulations for the neutralization of hybrid arrangements with third countries, IStR 2017, 205

Kessler, Wolfgang /

Kröner, Michael/

Köhler, Stefan

(ed.) | Kessler/Kröner/Köhler Group Tax Law, 3rd edition, Munich 2018 (cited: Processor, in: Kessler/Kröner/Köhler GruppeStR, § Rn.)

Lang, Michael | Qualification and attribution conflicts in DBA law, IStR 2010, 114

Leingärtner, Wilhelm/

Zaisch, Horst G.

(Recommendation) | Taxation of farmers, Loeblatt, 43. Edition, Munich 2022 (cited: Edited, in: Leingärtner, Cape Rn.)

Linn, Alexander /

Maywald, Andreas | The legal type comparison according to MoPeG and KöMoG, IStR 2021, 825

Mössner, Jörg Manfred/

Baumhoff, Hubertus/

Greif, Martin

among others

(referred to as ‘Employee’, in Mössner Steuerrecht, internationally active company, paragraph 1)

Musil, Andreas/

Weber-Grellet, Heinrich

(ed.) | European Tax Law – Comment, 2nd edition, Munich 2022 (cited: Editor, in: Musil/Weber-Grellet, Cap., Art./§ paragraph)

Philipp, Moritz | Tax subject qualification of a Delaware Limited Partnership according to the legal type comparison in the sense of the BMF letter of 19 March 2004, IStR 2010, 204

Prince, Ulrich/

Bald, Holger

(ed.) | Beck’s Handbook of Partnerships, 5th edition, Munich 2020

(cited: editor, in: Beck’sches Handbuch d. partnerships, § Rn.)

Röder, Erik | A Fresh Look at Type Comparison: Increased Corporate Legal Complexity Requires Radical Simplification, IStR 2021, 795

Scheffbuch, Daniel/

Rüdenburg, Ralf | Tax risks from qualification conflicts regarding a US LLC, IStR 2021, 546

Schmid, Hubert | Economic ownership of listed shares, note on the judgment of BFH of 2.2.2022 – I R 22/20, DStR 2022, 1142

Schmidt, Ludwig

(gr.) | Schmidt Income Tax Act, 42. Edition, Munich 2023 (cited: Editor, in: Schmidt, EStG, § Rn.)

Schnitger, Arne/

Oskamp, Michael | Refusal to deduct operating expenses for tax mismatches pursuant to § 4k EStG-E (Part I), IStR 2020, 909

this. | Refusal of the operating expense deduction in case of tax mismatches according to § 4k EStG-E (Part II), IStR 2020, 960

Schnitger, Arne/

Oskamp, Michael/

Kockrow, Madeleine | Imported tax mismatches according to § 4k para. 5 EStG – Janz nicely complicated ..., IStR 2021, 701

Schwemmer, Sophia | The Legal Type Comparison in International Tax Law, StuW 2023, 82

Seibt, Christoph H./

Buck-Heeb, Petra/

Harnos, Rafael

(ed.) | Beck’s online commentary on securities trading law, edition, Munich 2023 (quote: Editor, in: BeckOK WpHR, WpHG, § Rn.)

Stöber, Michael | Partnerships in Agreement Law, IStR 2020, 601

Troll, Max

(Greek) | Inheritance Tax and Gift Tax Act: ErbStG, Loseblatt, Edition, Munich 2022 (cited: Editors, in: Troll/Gebel/Jülicher/Gottschalk, ErbStG, § Rn.)

Vogel, Klaus

(Recommendation) | Vogel/Lehner Double Taxation Agreement, 7th edition, Munich 2021 (cited: Editors, in: Vogel/Lehner DBA, Cape Rn.)

Wabnitz, Heinz-Bernd/

Janovsky, Thomas/

Schmitt, Lothar

(ed.) | Handbook Business and Tax Criminal Law, 5th edition, Munich 2020 (cited: Editor, in: Wabnitz/Janovsky/Schmitt WirtschaftsStrafR-HdB, Cap.

Wagemann, Thorsten | Qualification conflicts in double taxation agreements, IWB 2022, 252

Wassermeyer, Franz/

Kaeser, Christian/

Schwenke, Michael/

Drüen, Klaus-Dieter

(ed.) | Wassermeyer Doppelbesteuer, Volume 1: Commentary OECD-MA, Loseblatt, 91. Edition, Munich 2023 (quote: Editor, in: Wassermeyer, OECD-MA 2017, Art. para.)

dies. | Wassermeyer Doppelbesteuer, Volume 4: Part of the country from Croatia to Austria, Loseblatt, 91. Edition, Munich 2023 (quote: Bearbeiter, in: Wassermeyer, DBA AT 2000 vor, Art. paragraph)

this. | Wassermeyer Double Taxation, Volume 6: Part of the Country from Sri Lanka to Cyprus, Loseblatt, 91. Edition, Munich 2023 (cited: Editor, in: Wassermeyer, DBA USA 1989, Art. para.)

Wassermeyer, Franz/

Richter, Stefan/

(cited: Bearbeiter, in: Wassermeyer/Richter/Schnittker Partners in International Tax Law, Rz.)

Wernberger, Michael/

Wangler, Clemens | The optimizing company according to § 1a KStG – A second class GmbH in international tax law?, DStR 2022, 1896

Meadow, Tobias/

Dammer, Thomas | Composite Financial Instruments of the AG – Hybrid Capital Measures, Structured Bonds and Credit Derivatives in Balance Sheet, Income Tax and Stock Law – An Overview, DStR 1999, 867

Zinowsky, Tim | Reason as a benchmark is included in income tax law, explanation of the provisions for the defense of hybrid designs according to § 4k EStG, IStR 2021, 500

Hybrid designs in international tax law are closely linked to the differences between the applicable national tax standards. The resulting qualification conflicts can cause both positive and negative effects for the taxpayers concerned. In addition, the causes can occur at various levels, such as the classification of the respective tax liability, the application of the taxation principle or the granting of deductions from operating expenses. It goes without saying that bilateral double taxation agreements, as well as any supplementary national provisions, play an immense role in the search for ways of resolving qualification conflicts by mutual agreement. Hybrid designs therefore depend on the advantageous solution of such qualification conflicts. Only if they are not dissolved by direct taxation, the use of an international agreement procedure remains open as a last resort.

List of abbreviations

For the rest, reference is made to Kirchner, abbreviation list of legal language, 10th edition. 2021, Berlin.

Table of Figures

Figure 1: Hybrid Financial Instrument

Figure 2: Hybrid legal entity in the inbound case

Figure 3: Hybrid legal entity in the outbound case

Figure 4: Reverse hybrid legal entity

Figure 5: Imported Hybrid Mismatch

A. Introduction

Taxes are linked to the reality of life. The aim of international tax planning is to design it in such a way that the tax burden associated with its realization is reduced. [1] Through targeted international tax planning, taxation can be influenced by reason, time and amount, so that the income after tax is maximized. [2] Taxpayers have the right to arrange their economic circumstances as best suited to their needs. [3] Therefore, structures for entrepreneurial activity can also be chosen that lead to a lower tax burden. This is not regularly an abuse of rights. In addition, the internationally active company offers itself the classic planning potential through the use of the international tax tariff differential for operational arrangements. Taking advantage of the tax disparity is an extremely complex issue, including a set of techniques for influencing tax bases by causally allocating income to low- and corresponding expenses to high-tax countries. [4] Within an internationally operating company, the overall tax burden can also be optimized by arranging the conditions in such a way that the different national income determination and income allocation regulations are used. [5] As an outflow of the principle of sovereignty under international law, each state is entitled to autonomously design its tax system. The sovereign and consequently non-harmonised tax systems result in so-called cross-border qualification conflicts, which lead to different tax treatments of identical economic situations. [6] Divergent tax treatment of an identical economic situation can lead to tax mismatches in the form of double and minority taxation in international companies. [7] For example, by using hybrid designs, a permanent tax deferral, double deductible expenses and non-taxation of income can be achieved. [8] The purpose of a hybrid arrangement is to bring about a tax mismatch in different countries through different tax treatments of an identical situation, which leads to a reduction in the overall tax burden. [9] The hybrid element of the arrangement can have its reason either in a payment if it is qualified differently, for example as interest or dividend, or in one of the participating legal entities.[10] This is classified by the participating states differently as a tax transparent or non-transparent legal form. [] 11]

The objective of the present scientific debate on the topic “The use of qualification conflicts in the double taxation agreements in connection with hybrid arrangements” is to work out and analyze the possibilities for internationally active companies to use the qualification conflicts resulting from the double taxation agreements. In particular, the control design possibilities with hybrid designs will be discussed in this context.

The present discussion deals first with the definition and the delineation of cross-border qualification conflicts in order to convey a contoured understanding of the conceptuality, since there is neither a legal definition nor a uniform terminology in literature or jurisprudence. Subsequently, the systematic classification of qualification conflicts takes place by illuminating and analysing the successive levels of development of qualification conflicts and their relationships to each other.

Since the aim of tax arrangements with qualification conflicts is to achieve non- and minority taxation, the second section of the discussion will deal with the tax aspects of different treatments of identical situations by different states that have arisen as a result of qualification conflicts.

In order to elaborate to what extent qualification conflicts in connection with hybrid designs are used in practice by internationally active companies, the present discussion first deals with the basic type of hybrid designs. The hybrid arrangements are then differentiated according to the tax mismatches resulting from them. Then, with regard to the tax aspects, an analysis should be made with regard to the most important conditions in practice for the use of hybrid arrangements. Finally, the result of the analysis is illustrated by a practical example. The conclusion is to summarize to what extent qualification conflicts in connection with hybrid designs can be used and provide an outlook.

B. Qualification conflicts in the double taxation agreements

Cross-border tax mismatches resulting from qualification conflicts can be used in international tax planning to reduce the overall tax burden of an internationally operating company.

I. Definition and dogmatics of cross-border qualification conflicts

The term “qualification conflict” is not a legal term because it lacks a legal definition. [12] Concerning the terms used, it should be noted that there is no uniform terminology. [13] Often, partly congruent, partly overlapping, but also partly exclusive terms are used in literature and jurisprudence. [14] The term "qualification" originates historically from private international law and is there in connection with the question of which legal system of a state should apply to an international situation.[15] In international tax law, the term is limited to treaty law.

behavior.[16] It is decisive for the law of the agreement whether the legal terms used in the double taxation agreement, which is equally binding for both contracting states, are to be interpreted autonomously at the level of the agreement or by an interpretation of the national law of one of these states. [] 17)

For a differentiated and divisive understanding of the term “qualification conflict”, it makes sense to distinguish between qualification conflicts in the broader sense and qualification conflicts in the narrower sense. [] 18)

A conflict of qualifications in the broader sense can be understood as the difference in the tax treatment of identical situations by the contracting states. [19] In the narrower sense, qualification conflicts are understood as divergent subsumption of tax law relationships under the distribution norm of a double taxation agreement. [] 20]

In the context of international tax law, the classification of legal relationships and legal entities among legal institutions of national law is often referred to as a qualification. [21] While the tax allocation of income to an income type is referred to as a tax object qualification, the classification of a legal entity to a taxation regime is referred to as a tax subject qualification. [22] The classification of the tax object as well as that of the tax subject takes place at the level of the national substantive tax law notwithstanding a double taxation agreement,[23] therefore different classifications by different states cannot directly lead to qualification conflicts in the narrower sense. However, the qualification of the tax object and subject is decisive for the subsumption under a distribution article of the double taxation agreement and can indirectly bring about a qualification conflict in the narrower sense. [] 24]

Furthermore, it is possible to distinguish between negative and positive qualification conflicts.[25] Positive qualification conflicts are characterized by the prevailing view that they lead to double taxation, while negative qualification conflicts lead to double non-taxation. [26] A positive qualification conflict results from the fact that both contracting states claim the sole right of taxation for a particular tax substrate in a cross-border situation, each individually and as a result of the application of their domestic subsumption of the situation.[27] On the other hand, a negative qualification conflict arises if the participating states come to the conclusion that they grant the other state the right to tax. [] 28]

II. Conflicts of qualification at classification level

The systematic classification of qualification conflicts distinguishes at which level of the qualification process they can arise. The levels of the qualification process are factual determination, subsumption of facts, substantive assessment and interpretation of the agreement. Due to the fact that the levels of the qualification process build on each other and are consequently linked, qualification conflicts that have arisen at individual levels are regularly carried up to the level of the agreement interpretation and can also trigger qualification conflicts there.[29] In particular, the qualification conflicts at the level of the subsumption of the facts due to deviating qualifications of the tax object or Tax subjects and at the level of substantive assessment due to different tax regimes in the contracting states are carried into the level of interpretation of the agreement.[30] It follows that conflicts of qualification in the broader sense can lead to conflicts of qualification in the narrower sense. [31]

At the level of classification, qualification conflicts often arise in cross-border structures in the context of the tax classification of financial instruments. [] 32]

III. Conflicts of qualification at tax object qualification level

Due to the flexible design options of hybrid financial instruments, they are prone to qualification conflicts, which can be used in international tax planning. [33] According to German commercial law, hybrid financial instruments are classified either as equity or as debt capital.[34] According to § 247 (1) HGB, the equity and liabilities are to be shown separately within the balance sheet and adequately divided. For the commercial definition of equity and debt, the function of the financial instrument under assessment should be considered, since commercial law does not legally define the concepts of equity and debt. [35] According to a functional approach, what is decisive is how the characteristics of the liability function are pronounced and the financial instrument under assessment serves as a risk carrier to creditors.[36] In the case of complex hybrid financial instruments, however, the segregation criteria reach their limits. Due to the decisiveness principle according to § 5 Abs. 1 EStG, the commercial classification of a financial instrument also applies to tax law.[37] According to § 8 Abs. 3 sentence 2 half sentence 2 KStG, the reduction of the tax base by the deduction of the expenses for the transfer of capital is refused if this entails a right to participate in the profit and the liquidation proceeds. [38] The provision differentiates between obligations-like and participation-like participation rights.[39] Accordingly, remuneration paid on liabilities-like profit participation rights reduces the tax base while remuneration paid on liabilities-like profit participation rights is not deductible.[40] It follows that remuneration for profit participation rights that do not grant a share in profits and liquidation proceeds reduces the tax base, while participation-like profit participation rights are to be shown in the annual accounts as equity. [41] In the provision of § 8 Abs. 3 sentence 2 half sentence 2 KStG is an off-balance sheet correction rule. Consequently, the scheme does not affect the commercial qualification of equity or debt.

As previously shown, the allocation of hybrid financial instruments is not always unproblematic in national commercial and tax law. Hybrid financial instruments lead to much greater difficulties in cross-border situations. The individual participating States make the allocation in accordance with their national law, so that the same financial instrument can be classified as debt capital domestically and abroad as equity capital, or vice versa.[43] If there is a different allocation according to the national rules of the participating States,

an objective qualification conflict.[44]

IV. Conflicts of qualification at tax subject qualification level

In the case of tax subject qualification, the tax regime applicable to the entity is determined and the resulting tax subject status is recognised. [] 45

Neither national law nor convention law contain provisions which ensure that a legal entity is qualified as a partnership or a corporation in the participating states. [] 46]

German tax law qualifies a foreign legal entity as a partnership or corporation. Consequently, it is subject to taxation under the principle of transparency as a transparent entity or under the principle of separation as a non-transparent entity.[47] For purposes of domestic income taxation, income is allocated in accordance with the provisions of national tax law.[48] The classification of a foreign legal entity is carried out by a legal type comparison developed by the case law of RFH and continued by BFH, without taking into account the tax regime of the country of residence. [] 49]

1st legal type comparison

Problems in the classification of a legal entity arise whenever the subject of the assessment is not a national economic entity, because foreign legal systems know in some cases clearly different forms of legal forms than those provided for under national law. [] 50

The principles of the legal type comparison are of particular importance in the context of this dispute in that the tax subject qualification is decisive for tax arrangements in connection with hybrid companies.

In the tax qualification of foreign legal entities, the material structure of the company or the real found type of company is important.[51] The tax classification depends on whether the foreign company is economically comparable with one of the entities mentioned in the KStG or one of the partnerships covered by the EStG. [] 52]

The methodology of this type comparison is a two-stage process. [] 53

At the first stage, the company-law characteristics of the legal form given under foreign law are to be determined in order to determine the degree of correspondence between the foreign legal forms and those under German law. Thus, it can also be decisive whether the classification of a legal form is given by a legal standard or whether it is a legal principle that can be substantiated. [] 55

At the second stage, the findings on the legal form to be classified from foreign company law are assigned to the respective national tax type of a partnership or corporation. [56] The tax administration has developed decisive criteria for delimitation from case law in order to make a type comparison.[57] Decisive features are in particular the management and representation, liability, transferability of shares, profit allocation, capital raising and life of the company. [] 58]

When the management and representation of a company is centralized and other persons as partners for the management or Representation is generally a corporate tax feature.[59] In the direction of a partnership, however, the assessment is steered if the management is carried out exclusively by the shareholders and they alone are entitled to representation. [60] Limitation of liability is a typical feature of a corporation. This is characterized by the fact that no partner is personally liable for the liabilities of the company with his private assets. [61] On the other hand, personal liability for company liabilities is defining for partnerships.[62] A fundamentally free transferability of shares to persons other than the shareholders is an essential feature of a limited liability company, whereas the partnership is characterised by the fact that the position of the shareholders is based less on the desire to invest their capital in a beneficial manner than on an intrinsic bond with the co-shareholders with regard to joint work to promote the company. [63] As a result, the transferability of the shares is often excluded and only possible within a limited framework, which depends on the approval of the other shareholders. [64] For corporate profit allocation, a resolution of the shareholders is regularly necessary to decide to what extent the available profit is distributed or redeemed. [65] For the existence of a partnership, the free availability of the shareholders speaks about their profit shares. [66] When assessing foreign legal forms, the obligation to raise capital is considered a characteristic of a corporation. [67] In contrast, partnerships do not require the raising of capital; rather, deposits made are common assets of all shareholders. [68] In addition, it can be agreed that the provision of deposits, which can also be provided, for example, in the form of services, is waived. [69] The characteristic of the life of the company is difficult to determine for the comparison of legal types, whereby for corporations a life of basically unlimited and independent of the shareholders is distinguished. [70] In contrast, partnerships are characterised by the grounds for dissolution, whereby the death, termination or insolvency of a partner does not necessarily lead to the dissolution of the company. [71] Therefore, additional indicators should be taken into account for the comparison of legal types. Thus, further reasons for the continuation of the company are regularly found in the social contract.[72]

If the delimitation features of the foreign company have been examined, the legal entity is finally classified as a capital or partnership, taking into account the overall picture of the circumstances. [] 73

The national classification of the company based on the legal type comparison enforces the qualification under agreement law.[74] If the participating state classifies the legal entity as a transparent personnel company, whereas under national law a non-transparent corporation exists, a so-called hybrid legal entity exists. 75

2nd qualification by the premises administration principles

A qualification by the legal type comparison can be omitted if the legal entity to be assessed has one of the legal forms listed in the premises administrative principles. [] 76

At the level of classification, conflicts in the context of tax subject qualification only occur if the participating states come to different conclusions.[77] Conflicts of qualification in the assessment of tax subject status can be decisive for conflicts in the context of tax object qualification if the classification of the legal entity is carried out differently by the participating states. [] 78]

V. Conflicts of Qualification at Substantive Assessment Level

As the previous sections on tax object and tax subject qualification show, the result of the factual qualification is the basis for the substantive assessment. Even an identical classification of the facts in the participating states is no guarantee for avoiding qualification conflicts. Conflicts of qualifications arising from diverging substantive assessments arise in particular in connection with hybrid financial instruments and cross-border hybrid entities. [] 79

1st Hybrid Financial Instruments

Hybrid financial instruments can lead to positive and negative qualification conflicts at the level of substantive assessment. The prerequisite for this is that the participating States do not qualify the hybrid financial instrument in accordance with the classification of the facts and that this qualification is associated with different substantive legal consequences. [] 80]

A tax arrangement consists in constructing a financial instrument in such a way that it is qualified as debt capital in the payer’s State and the expenses paid for it reduce the payer’s tax base. [81] On the part of the payee, on the other hand, the hybrid financial instrument qualifies as equity so that the remuneration is generally entitled to a tax deduction or tax exemption. [] 82

2nd Hybrid Legal Entities

Hybrid entities can lead to qualification conflicts at the level of substantive assessment if different tax regimes are applied in the participating states. [83] These qualification conflicts can also occur if the participating states at the level of the factual qualification identically qualify a legal entity as a partnership or corporation. [84] Substantive conflicts occur particularly frequently despite matching factual qualifications in connection with partnerships. [85] This is not due to the fact that foreign jurisdictions do not know the type of partnership or the principle of transparency. Rather, the cause is divergent.

Taxation concept for partnerships. [] 86)

According to national law, partnerships are generally taxed transparently according to the co-entrepreneur concept, unless opted for corporate taxation according to § 1a KStG. [87] The German co-entrepreneur concept is a filigree system which, in addition to the result of the co-entrepreneur’s special area, also enters into the total hand profit determined for the co-entrepreneurship and attributable to the co-entrepreneurs in accordance with the participation rate. [88] The special division is divided into special assets of categories I and II. The special company assets can each have positive and negative assets, and include expenses and income related to the company or the establishment and strengthening of the shareholder's participation in the co-entrepreneurship.[89] § 15 para. 1 no. 2 half. 2 EStG has the effect that remuneration from contractual obligations between the co-entrepreneurship and its co-entrepreneurs is allocated to the commercial sector as profit shares. [90] Thus, remuneration for the transfer of capital, the transfer of assets and for activities in the service of co-entrepreneurship are requalified into commercial income and do not reduce the result of co-entrepreneurship. [91] A comprehensively comparable regulation of this co-entrepreneur concept is largely unknown internationally. [92] Internationally, other states tax partnerships in principle in accordance with the principle of transparency, but there is no tax neutralization of debt-law relationships between the partnership and its fellow entrepreneurs.[93] In other states, the tax concepts of partnerships are again approximated to those according to capital company principles. [94] For example, partnerships in Spain, Japan and many Eastern European countries must be taxed non-transparently according to the principle of separation. [] 95

Legal entities that are taxed transparently in Germany while the participating state taxes them non-transparently are referred to as hybrid legal entities from the German point of view. [96] From a German point of view, a reverse hybrid legal entity exists if it is treated non-transparently in Germany and transparently in the participating state. [] 97

According to this, a hybrid entity may exist, regardless of any qualification conflict at the level of the tax subject qualification, if the participating states apply different tax regimes.

VI. Conflicts of qualifications at interpretation level

Conflicts of qualification at the level of the agreement result from different classifications of tax law relationships under the distribution norms of a double taxation agreement.[98] Such divergent subsumptions of tax law relationships can be attributed to a different interpretation of legal concepts in the double taxation agreement or a national understanding that was erroneously incorporated into the scope of the agreement. The literature speaks of a so-called original qualification conflict.[99] Subsumption divergences also arise in the transfer of qualification conflicts from the upstream levels to the agreement level, so-called derivative qualification conflicts.[100]

1.Original qualification conflicts

Double taxation agreements are to be interpreted autonomously. They are to be interpreted from their own context and in principle independently of the national tax law of the Contracting States.[101] This applies in particular to the terms legally defined by the double taxation agreement. [102] This includes the general definitions in the art. 3 to Art. 5 OECD-MA.[103] The legal terms are concretized in the framework of the definition under agreement law with the help of other terms. Insofar as the concretizing terms are again not legally defined independently in the agreement and an interpretation from the context of the agreement is not possible, art. 3, par. 2 OECD-MA requires an interpretation under national law.[104] An independent interpretation of terms of agreement under national law is clearly required if the agreement refers directly to national law.[105] The OECD-MA contains such references in the art. 3, 4, 6, and 10. Consequently, for any term not legally defined in the Convention, the meaning assigned to it under the domestic law of the Contracting State applies. If there is no direct reference to domestic law, because of the wide scope for interpretation under the convention context, problems arise in recognizing when the inclusion of domestic law may take place at all.[106] This is ultimately a consequence of the impossibility of comprehensive codification under the Agreement.[107] Conflicts of original qualifications can therefore arise both as a result of divergences in the agreement-autonomous interpretation and as a result of recourse to national law, as a result of a national understanding incorporated into the scope of the agreement.

Derivative Qualification Conflicts

Derivative qualification conflicts can have their origin in a divergent factual determination, a divergent classification of the facts or a divergent substantive assessment. [108] As already shown, the individual levels are related, therefore conflicts of qualification arising at these levels can be carried into the agreement level and ultimately induce deviations in subsumption under agreement-law distribution norms there.[109]

C. Taxation mismatches due to qualification conflicts

As the discussion in the previous section shows, depending on the structure of the situation, the different tax treatment of identical situations by different states can lead to both negative and positive qualification conflicts and thus lead to tax mismatches in the form of non- or reduced taxation and in the form of double taxation.

I. Non- and minority taxation due to negative qualification conflicts

Negative qualification conflicts occurring in connection with hybrid designs can lead to non- or reduced taxation.[110] A non-taxation exists if the respective income in both the source and the residence state does not enter into the tax base because it is either not taxable at all or is completely exempt from tax. [111] However, it does not matter that taxes are actually levied on income. [112] Accordingly, there is no non-taxation if income is offset against expenses or losses and only for this reason no taxes are levied. In literature, non-taxation is also often found under terms such as “one-time taxation”, “white income” and “zero taxation”. [113]

Lower taxation, on the other hand, is to be assumed if the actual foreign tax is lower than the tax that would have been collected abroad if the foreign country had followed the qualification under German law.[114] In connection with cross-border qualification conflicts, reduced taxation can result from double non-taxation, double inclusion of expenses - a so-called "double dip" -, a deduction of operating expenses without corresponding taxation of operating income or a different recording of operating expenses and operating income over tax periods. [115] While a loss in taxation is undesirable from a fiscal point of view due to the loss of the tax base and the resulting decline in tax revenues, it is often sought by companies. The targeted use of negative qualification conflicts by cross-border companies makes it possible to significantly reduce the overall tax burden. The reduction of the total tax burden is therefore a tax policy objective in addition to the proper fulfilment of the legal requirements, since a small reduction is already required.

can have the same effect on net income as a significant increase in revenue.[116] This in turn has a positive impact on shareholder value and market capitalization.

II. Double taxation due to positive qualification conflicts

Conflicts of qualification entail the latent danger that double taxation will result from them. A distinction can be made between legal and economic double taxation. A legal double taxation exists if the same taxpayer with the same income or the same taxation medium is used for comparable taxes in the same tax period in at least two countries.[117] On the other hand, there is economic double taxation if the same tax object is used for comparable taxes in at least two countries in the same tax period, but it is based on the identity of the tax object.

Taxpayer absent.[118] Thus, double taxation occurs particularly frequently in connection with qualification conflicts in taxpayer qualification when one state treats a partnership as a non-transparent entity and taxes income at company level, while another state treats the same partnership as a transparent entity and allocates the income to the shareholders and taxes it there.[119] Hybrid designs in particular are susceptible to economic double taxation. In the context of cross-border qualification conflicts, double taxation may result from double tax registration, double non-inclusion of expenses, recording of operating income without a corresponding deduction of operating expenses or deviating periodisation of operating income and operating expenses. [120]

The increased tax burden of double taxation and the associated reduction in the profitability of companies worsens competitiveness in the foreign market, which has negative consequences for macroeconomic growth, which leads to lower tax revenues in the long term.[121] Thus, double taxation hinders international trade and ultimately harms all participating states. [122]

D. Deduction/Non-Inclusion Incongruity

As the discussion in section B shows, hybrid designs can be used to create negative qualification conflicts arising from the differences between two tax systems in the legal classification of financial instruments or companies. The result of this hybrid arrangement is often a double deduction of operating expenses in both tax systems or a deduction of operating expenses in one state with simultaneous non-taxation in the other state.

Deduction/Non-Inclusion Result refers to hybrid elements that result in tax mismatches due to payments that are generally deductible from the debtor as operating expenses and are not taxed from the creditor. [123] Consequently, a deduction/non-inclusion result leads to a non-taxation or reduced taxation. A D/NI result is regularly achieved in practice with hybrid designs.[124] Thus, arrangements with hybrid financial instruments or hybrid transfers, hybrid legal entities and vice versa, are suitable for achieving such an outcome. [125]

I. Use of hybrid financing and hybrid transfers related to capital assets

Hybrid financial instruments and hybrid transfers differ in that hybrid financial instruments, in the case of domestic taxpayers, an interest payment deductible as operating expense is treated by the State of the payee not as remuneration for the provision of debt capital, but as a distribution of profits.[126] Conflicts of qualification at the level of substantive assessment and associated taxation mismatches can be achieved through the use of hybrid loans, typically silent partnerships, convertible bonds or profit participation rights.[127]

In the case of hybrid transfers of capital assets, the tax mismatch is based on a different allocation of capital assets arising in particular from securities lending and repo transactions. [128]

1.Requirements for the use of hybrid financial instruments or hybrid transfers

In order to achieve a deduction/non-inclusion result with hybrid financial instruments or hybrid transfers, the following conditions must be met cumulatively:

Expenses for the use or in connection with the transfer of capital assets, a tax qualification deviating from German law or attribution of capital assets, a non- or lesser taxation of the income corresponding to the expenses and a causality between the deviating qualification or attribution and the non- or lesser taxation.

The cumulative requirements to be met are analysed in the following sections.

a) Expenditure related to the use or transfer of capital

The term “expenses” used in the context of this requirement is based on the concept of § 4 para. 4 EStG, according to which expenses are to be understood as all outflows that are not withdrawals.[129] Consequently, the term covers both cash-generating expenses that derive in the form of money or monetary value from the assets of the taxpayer and non-cash-generating expenses that have an impact, for example, in the form of depreciation in connection with the corresponding capital assets.[130] However, the term does not cover all types of expenses, but is based on expenses arising from use or in

Context limited to the transfer of capital assets. The concept of capital assets is to be interpreted in accordance with § 20 EStG. [131]

Thus, expenses for the use of capital assets include in particular interest expenses. Expenditure relating to the transfer of capital assets includes, in particular, substitution or compensation payments for dividends or interest paid in the course of a securities loan or a securities repurchase transaction. [132]

b Divergent tax qualification or allocation of capital assets

In addition, a deviation between German and foreign tax law is required. This requires a divergence between deduction of operating expenses and tax recognition of the corresponding income on the basis of a different tax qualification of the income or a different tax allocation of the capital assets.

A different qualification of capital assets exists if an interest payment deductible from the domestic taxpayer as operating expense is treated by the state of the payee not as remuneration for the provision of external capital, but as a distribution of profits, which in accordance with the provisions of § 8b para. 1 sentence 1 KStG is taxed either not or lower than if the foreign state would tax the remuneration as interest as Germany would.

This divergent treatment is again based on a different tax classification of the transferred capital, on the one hand as equity capital by the creditor's state and on the other hand as external capital by the debtor's state.[135] With the provision of hybrid financial instruments of, for example, typically silent participations, option bonds, convertible bonds and obligations-like participation rights, qualification conflicts can be brought about at the level of the tax object. [136]

Divergent allocation of capital assets occurs when, in the case of a transaction, the underlying income of a capital asset to be transferred is economically allocated to more than one taxable person involved in the transfer. The divergent tax allocation of the economic ownership of the capital assets to be transferred between the participating states results from the fact that the participating states link their assessments to different legal criteria.[137] Frequently chosen financial instruments in order to achieve a different tax allocation based on the allocation of economic ownership according to § 39 para. 2 No. 1 AO are so-called repo transactions (buyback agreement) and securities lending transactions, since the rights and obligations of the parties are usually structured in such a way that the lender has the full economic risk and the right to receive the income from the transferring financial instrument.

Thus, under national law, the transferring shares are allocated uninterruptedly to the domestic seller in a repo transaction and the part of the repurchase price is treated as a deductible financing expense. If the state of the acquirer, in accordance with its prevailing principles, allocates the acquired shares to the acquirer between purchase and repurchase, a different allocation of capital assets is given.[139]

Even in the case of a cross-border securities lending, a different allocation is given if Germany as the borrower’s state allocates the securities to the borrower and the participating state to the lender. [140]

c) Non-taxation or reduced taxation of income corresponding to expenditure

Another condition is that the income corresponding to the expenses due to a tax qualification deviating from German law or attribution of capital assets is not taxed or lower than under German law corresponding qualification or attribution. [141] Consequently, the derogating qualification or attribution must lead to non-taxation or reduced taxation of income corresponding to expenses abroad.

The income corresponding to expenses is the income of the payee, which comes from the performance relationship with the German taxpayer.[142] Income includes, in particular, dividends, interest income and also compensation payments, provided that these result from the use of the same capital assets or in connection with their transfer.[143]

Non-taxation occurs if, due to the deviating qualification of the financial instrument, the interest expenses deductible by the domestic taxpayer as an operating task at the participating foreign payee are not qualified as income for the transfer of external capital, but as a profit distribution and in accordance with § 8b para. 1 sentence 1 KStG are not taxed. [144] In the case of a deviating allocation, non-taxation occurs if, on the basis of a deviating economic allocation of a financial instrument, the compensation payment paid by the domestic borrower to the foreign lender is deducted in the meantime as operating expense free of tax for the shares transferred in the context of securities lending, while the state of the lender qualifies the compensation payment as a dividend on the transferred shares and consequently on the basis of a dividend pursuant to § 8b para. 1 KStG also exempts from taxation.[145] In the case of a repo transaction, non-taxation results if Germany continues to allocate the shares to the domestic seller and hence treats a part of the repurchase price as a deductible financing expense, but the acquirer’s State allocates the shares between the purchase and the repurchase and exempts dividends received during this period and the profit from the resale of the shares. [146]

In addition to cases of non-taxation, the reduced taxation of income corresponding to expenses also makes it possible to design a deduction/non-inclusion result. As the elaboration shows, lesser taxation exists if the corresponding income in the participating state is lower due to a tax qualification or allocation of capital assets that deviates from domestic law than if the qualification or allocation is taxed in accordance with German law. For example, if dividends are not exempted from taxation in the State concerned, but are taxed at a reduced rate of 15%, whereas the tax rate applicable to other interest income is 40%, then the tax is reduced.[147]

d Causality between the different qualification or attribution and the non-or Tax reduction

Lastly, it is necessary that the qualification or allocation of capital assets deviating from national law is the cause of non-taxation or loss of taxation. The necessary causality between non-taxation or under-taxation and the qualification or attribution derogating from national law is in the case of hybrid financial instruments. Transfers are given regularly, as they aim to bring about a deduction/non-inclusion result. [148]

The condition of causality is not met if the non-taxation or loss of inheritance is due to the fact that the underlying financial instrument is differently qualified as debt capital in the payee’s country, but the income corresponding to the expenses is not taxed because the payee is a personally exempt entity or because interest income is not taxed or lower in the participating country. [149]

2nd example of using a hybrid financial instrument

As the discussion shows, it is possible to achieve a deduction/non-inclusion result in the cumulative fulfilment of the requirements of a hybrid financial instrument or a hybrid transfer. This can be illustrated by the following example of a hybrid loan:

Figure 1: Hybrid financial instrument, source: Own presentation.

ForCo, with headquarters and place of management abroad, grants a hybrid loan to the domestic corporation. The hybrid loan qualifies as tax debt capital in Germany because, on the basis of the loan terms, it provides the lenders with a profit-related remuneration, but no legal participation in the liquidation proceeds. Whereas the participating State treats it as equity because of the similarity of the participation. Thus, the interest payments of the domestic corporation are tax deductible, but are not subject to taxation in the participating state, since the latter completely dividends the interest payments. Profit distributions are completely exempt from taxation. This results in a deduction/non-inclusion result.

II. Use of hybrid entities in inbound cases

Hybrid entities are suitable for generating a deduction/non-inclusion result by not subjecting the corresponding income abroad from performance relationships between a hybrid entity and its shareholder or performance relationships between permanent establishments of a company, due to a different tax treatment of the entity or a different distribution of profits between permanent establishments. [150]

Typical use cases are constellations in which a taxpayer in Germany deducts expenses as a non-transparent legal entity, is qualified as a permanent establishment in the participating state and taxation of the income associated with the expenses is avoided. [151]

1.Requirements for the use of hybrid entities

In order to achieve a deduction/non-inclusion result with hybrid entities, the following conditions must be met cumulatively:

Expenditure, a tax treatment of the legal entity that deviates from German law or a tax assessment that deviates from German law of assumed debt-law performance relationships, the income corresponding to the expenses is not subject to actual taxation in any state and a causality between the deviating tax treatment or income. Assessment and non- and minority taxation.

The cumulative requirements to be met are analysed in the following sections.

a. Expenditure

First of all, there must be deductible expenses in Germany that lead to a deduction of operating expenses under German tax law and thus to a reduction of the income tax base. As with hybrid financial instruments, the term “expenses” is compatible with the concept according to § 4 para. 4 EStG, according to which expenses are understood to mean all value outflows that are not withdrawals. Expenses can be either cash-based or non-cash-based.[152] Unlike hybrid financial instruments, the term expense includes not only expenses related to capital assets, but also expenses of any kind that lead to deductible operating expenses in the country.[153] This includes, in particular, interest and royalty expenses, rental and service fees and depreciation.[154]

b Incongruous tax treatment of legal entity

An incongruent tax treatment of the entity presupposes that the actual non-taxation is due to the different tax treatment of the entity. A different tax treatment of the legal entity exists if the taxpayer claiming the expenses is treated as a non-transparent legal entity in contrast to the German tax subject qualification, in the state of the creditor of the income as a transparent legal entity.[155] Accordingly, a hybrid legal entity is given.

A corresponding deviating tax assessment of the legal entity may result from the fact that the creditor’s state qualifies the domestic non-transparent company as a partnership according to the legal type comparison and thus taxes it transparently. [156] In this case, there is a conflict at the level of tax subject qualification. In practical terms, constellations are often chosen in which the taxpayer exercises a right of choice for taxation of the entity as transparent, so that a different qualification is also given if the

Legal entity is consistently qualified as a corporation in both the State of the creditor and the State of residence, but is subject to transparent taxation due to the taxation regime in the State of the creditor.[157] For example, under US tax law, transparent taxation is chosen for the corporation under the so-called “check-the-box” procedure. Accordingly, a different tax treatment of the legal entity is given. [158]

c) Divergent tax assessment of assumed obligations

As an alternative to the different tax treatment of the legal entity, the tax mismatch may result from a different profit accrual between several permanent establishments or between the parent company and the permanent establishment in order to meet the requirement for the use of a hybrid legal entity. [159]

In principle, no civilly effective performance relationships can be agreed between the premises of a company, since it is the same legal entity. According to § 1 para 4 sentence 1 no. 2 AStG i.V.m. § 16 para. 2 sentence 2 BSGaV are to recognize in the context of the determination of a permanent establishment result fictitious income and expenses from assumed debt-law performance relationships between the permanent establishments.[160] Acceptable debt-law relationships exist if there are economic processes that necessitate changes in assets, opportunities and risks as well as business transactions in the relationship between the permanent establishment and the other company. [161]

Thus, a different tax assessment of assumed debt-law relationships is already given if a fictitious deduction of operating expenses takes place in Germany, but no corresponding recording of fictitious income takes place in the other state, because the other state assesses the debt-law relationships differently from German law. A conflict of qualification is not necessary with regard to the tax treatment of the creditor.

d Expenditure corresponding to income is not subject to effective taxation

The income corresponding to the expenses is the income resulting from the performance relationship with the German hybrid legal entity or from the performance relationships between permanent establishments or between parent company and permanent establishment. [163]

Actual taxation is given if the income is included in the tax base. [164] It is therefore irrelevant whether the recipient shows a positive taxable income or actually pays taxes. [165] Similarly, tax reductions, loss relief or offsetting against negative income do not preclude effective taxation. [166] For the question of whether there is an actual taxation of income, the actual and not the abstract treatment should be considered.[167] The form in which the tax is levied is insignificant.[168] Thus, in addition to the assessment tax, a deduction tax is also imposed. Withholding tax for an actual taxation, it does not matter whether it is a German or foreign tax. [169] In order to determine whether the proceeds in question are subject to effective taxation, it is necessary to consider not only the State of the creditor of the proceeds but also that of the creditor’s direct or indirect shareholder or other States in which the proceeds are taxed. [170] Since there is actual taxation when income is included in the tax base, the level of the applicable tax rate is important, because a reduction in taxation is to be assumed if the actual foreign tax is lower than the tax that would have been levied abroad if the foreign country had followed the qualification under German law.[171]

On the other hand, there is no actual taxation to the extent that the other State is not able to tax the proceeds, in particular because they are not taxable or the proceeds are excluded from the tax base by virtue of a material exemption, the recipient of the proceeds is personally tax exempt, or are not actually taxed for any other reason. [172]

As shown, the targeted tax mismatch arises in the event of actual non- or reduced taxation of the corresponding income.

e) causality between the different tax treatment or Assessment and non- and reduced taxation

Finally, it is necessary that the different tax treatment of the legal entity or the different tax assessment from the assumed debt-law relationships is the cause of the non-taxation or less taxation. [173]

The condition of causality, on the other hand, is not met if the non-taxation or loss of income is due solely to the fact that the foreign shareholder is subject to a personal tax exemption or due to the fact that the foreign resident state does not collect income taxes.[174]

2nd example of the use of hybrid entities in the inbound case

A case where the condition for the use of hybrid legal entities is met in

Inbound case can be illustrated by way of example as follows:

Figure 2: Hybrid legal entity in the inbound case, Source: Own presentation.

The shares in the German-based corporation are held by ForCo, which is based in the USA. ForCo has granted a loan to the German-based corporation on which it pays interest. For US tax purposes, the corporation qualifies as a permanent establishment of ForCo because it was opted for treatment as a disregarded entity under the so-called check-the-box procedure. Therefore, the US does not recognize the loan tax, so the

Interest payments in the US are not recognised as taxable income. In Germany, interest expenses can generally be deducted as operating expenses. Due to the check-the-box procedure for treatment as a disregarded entity, a tax qualification of the corporation deviates from German law. Since the income corresponding to the interest expenses is not taxed because of the qualification conflict, a deduction/non-inclusion result is available.

III. Use of hybrid entities in the outbound case

In outbound situations, hybrid entities are regularly chosen in the form of a partnership managing assets from the German point of view, in which a taxpayer who is unrestricted in Germany is a direct or indirect shareholder, in order to achieve a deduction/non-inclusion result.[175] The tax mismatch results from the application of § 39 para. 2 No. 2 AO on foreign asset management partnerships, on the basis of which an actual taxation of corresponding income is avoided. [176]

1.Requirements for the use of hybrid entities in the outbound case

In order to achieve a deduction/non-inclusion result with foreign asset management partnerships in outbound situations, the following conditions must be met cumulatively:

Income which is not subject to actual taxation due to attribution deviating from German law, a foreign asset management partnership, the creditor of the income is an unlimited taxable, direct or indirect shareholder and the deduction of expenses is permitted in the other state.

The cumulative requirements to be met are analysed in the following sections.

a No actual taxation of corresponding income due to different allocation

The requirement is met if the income in Germany is not subject to actual taxation due to a different tax treatment of the payer. This is therefore the case if the foreign partnership is qualified under German law as an asset management partnership and thus tax transparent and from the point of view of the foreign state as tax non-transparent.[177]

§ 39 Abs. 2 No. 2 AO regulates the allocation of total hand assets in cases where separate allocation is required for tax purposes. [178] According to this, the total assets are attributed to the participants as if they were involved in the respective economic goods after fractions.[179] The fractional analysis leads to the fact that performance relationships between the asset management partnership and its shareholders do not exist for tax purposes, insofar as the shareholder is involved in the asset management partnership. [180] Consequently, neither expenses nor income from these performance relationships are recognised from a tax point of view. [181] This has the consequence that the expenses that can be deducted abroad, such as interest payments, are not in contrast with the company’s corresponding income in Germany to its unrestrictedly taxable shareholder.[182] The reason for the non-taxation is that under German law the income is negated for tax purposes and therefore the income is treated differently from the participating state.[183]

b Foreign equity management partnership

As a further prerequisite, the payer must be a foreign asset management partnership from a German tax point of view, which is treated as non-transparent for tax purposes by the resident state.[184]

The condition is not met if the payer is qualified from the tax point of view of Germany as an original commercial partnership or partnership with a commercial character. In such cases, the performance relationships between the originally commercially active or commercially characterised company and the unlimited taxable shareholder resident in Germany are recognised for tax purposes,[185] so that there is no tax mismatch. These are benefits that lead to special remuneration or special operating income. [186]

Also, the condition of the existence of a foreign asset management partnership is not given if the company does not constitute a partnership from a tax point of view from the German point of view. [187] Such a constellation is regularly to be found in a US-Limited Liability Company as a hybrid legal entity in which a German GmbH is the sole shareholder. In the USA, the US-LLC is qualified as a corporation and thus treated non-transparently, whereas Germany comes to the conclusion after the legal type comparison that the US-LLC has more characteristics of a partnership.[189] They are only a shareholder.

has, the US-LLC is not treated as a partnership.

c The creditor is an unrestricted taxable, direct or indirect partner

In order for the tax mismatch to occur, the creditor of the proceeds in Germany must be an unrestrictedly taxable person who is a shareholder of a foreign asset management partnership.[190] However, it is not sufficient that the unrestrictedly taxable person is only involved in the partnership, but rather there must also be a performance relationship between the German shareholder and the foreign asset management partnership, on the basis of which the company can receive a remuneration to the German shareholder.

Partner performs.[191] It is also sufficient if the German partner is involved indirectly through other asset management partnerships with which the unrestricted taxable person maintains a service relationship. [192]

d Deduction of expenses allowed in other country

Lastly, expenses corresponding to the corresponding income must be eligible for deduction in the country of residence of the foreign asset management partnership.[193] A non-transparent treatment of the paying personnel company abroad generally means that the expenses abroad are tax deductible and the corresponding income from the performance relationship with the German taxpayer is attributed to it. [194]

2nd example of the use of hybrid entities in the outbound case

The tax consequences of the cumulative fulfilment of the conditions for the use of hybrid entities in the outbound case can be illustrated by the following example:

Figure 3: Hybrid legal entity in the outbound case, Source: Own presentation.

The German-based corporation holds all shares in ForCo through an asset management partnership with headquarters and place of management abroad. ForCo received an interest-bearing loan from the domestic corporation and used it to purchase land. ForCo generates income from renting and leasing. In accordance with the legal type comparison, Germany comes to the conclusion that ForCo predominantly has characteristics of a partnership. Accordingly, ForCo is qualified as an asset management partnership from a domestic perspective. On the other hand, the resident state classifies ForCo as non-transparent for tax purposes, so that interest expenses are deductible as operating expenses. In Germany, starting from § 39 Abs. 2 No 2 AO does not recognise the loan relationship between the limited liability company and ForCo, since the limited liability company is imputable not only to the liability but also to the claim on the loan, so that the corresponding interest income is not subject to taxation at the level of the domestic limited liability company. Consequently, a deduction/non-inclusion result is obtained.

IV. Use of reverse hybrid entities

Object of use of reverse hybrid entities to achieve a deduction/non-inclusion result, are entities that are qualified as transparent entities in the state of their establishment and as non-transparent entities in the state of the directly or indirectly involved parties. [195] While the use of hybrid entities typically targets payments from these or operating sites, D/NI results in connection with reverse hybrid entities are realized in particular by payments to reverse hybrid entities, payments to so-called unconsidered operating sites or by allocation of payments to different operating sites. [196] The tax mismatch thus presupposes a conflict of qualifications at the level of the taxable person or a deviating allocation of the corresponding income.

1.Requirements for the use of reverse hybrid entities

The use of reverse hybrid entities to achieve a deduction/non-inclusion result requires the cumulative existence of the following characteristics:

Expenses corresponding to the expenses are not subject to actual taxation in any state, an allocation or attribution of income deviating from German law under the laws of other states and a causality between the divergent allocation or attribution and the non-taxation.

The cumulative requirements to be met are analysed in the following sections.

a. Expenditure

First of all, there must be deductible expenses that lead to a deduction of operating expenses under domestic tax law and thus to a reduction of the income tax base.[197] In this context, reference is made to the already made in the section of the use of hybrid legal entities in the inbound case and correspondingly applicable executions of the expenses.

b The income corresponding to the expenses is not subject to effective taxation in any country

Furthermore, the income corresponding to the expenses may not be subject to effective taxation either in the country of residence of the reverse hybrid entity or in the country of residence of the participants of that entity. In this context, the statements made in the section on the use of hybrid entities in the inbound case regarding the expenses of corresponding income are not subject to any actual taxation accordingly.

c A different allocation or allocation of income from German law under the legislation of other states

In addition, an allocation or attribution of income deviating from German law is required.[199] A divergent attribution is given if Germany and abroad assign a return to different legal entities.[200] A divergent allocation exists if Germany and abroad allocate a yield to different companies.[201]

aa Divergent tax allocation of income

Divergent tax allocation of the income corresponding to the expenses occurs if a legal entity is established or established in its company. The local state is subjected to transparent taxation, for example as a partnership, and thus the income is directly attributed to the shareholders, while the resident state of the shareholders qualifies this legal entity as an independent tax entity and consequently taxed non-transparently.

Due to the mirror image of hybrid legal entities, in literature, in such constellations, so-called reverse hybrid legal entities are spoken of.[203]

bb Divergent tax allocation of income

Divergent tax allocation of income corresponding to expenses occurs either in the case of divergent allocations in connection with permanent establishments or in payments to unconsidered permanent establishments.[204]

A conflict in the allocation of payments between the parent company and a permanent establishment or between several permanent establishments of the same legal entity arises due to divergences in the national allocation rules of the participating States, which are reflected in the application of the Agreement.[205] Such conflicts arise in particular in connection with the concept of actual affiliation as well as the national allocation regulations of certain income and assets within the framework of the German co-entrepreneur concept.

A conflict arises in payments to unconsidered permanent establishments if, according to the regulations of the state of the head office, the existence of a permanent establishment in the other state is affirmed, whereas, according to the regulations of the supposed permanent establishment state, this does not exist.[207] Consequently, in the case of payments to unconsidered permanent establishments, unlike the different allocations in connection with permanent establishments analysed above, the question of the existence of the permanent establishment is answered differently by the participating States.

d Deviation from German law due to legislation of other states

A different tax allocation is not only a prerequisite for the use of reverse hybrid legal entities, but also for the use of hybrid legal entities as well as hybrid financial instruments. transfers. There are two differences. On the one hand, there is a difference in the object of attribution, because while the use of hybrid financial instruments or Concerning the allocation of capital assets, the use of hybrid legal entities aims at the allocation of income.[208] Another difference is the cause of the divergent attribution. The different allocation for hybrid financial instruments or transfers must necessarily be due to the fact that the participating states use a different definition of ownership.[209] On the other hand, the different allocation for hybrid and vice versa hybrid legal entities results from the fact that the participating states treat a legal entity differently as a capital or partnership.[210]

The requirement of a different tax allocation or allocation is already fulfilled if the allocation or allocation of a participating state differs from that under German law and the income is therefore not subject to effective taxation in any state.[211] It is not necessary that the German assignment or attribution of the corresponding assignments or Attributions of all participating states differ.[212]

e) Causality between divergent attribution or attribution and re-taxation

Furthermore, a causality of attribution or attribution is required for non-taxation, which is the case if there is a tax mismatch without a different attribution or attribution. For example, if there is a different allocation from German law, but the non-taxation is only due to the fact that the participating state generally does not levy corporate tax.[213]

2nd example Use of reverse hybrid entities

As previously shown, the cumulative fulfilment of the requirements allows the use of reverse hybrid legal entities to bring about a deduction/non-inclusion result. An exemplary situation can be presented graphically as follows:

Figure 4: Reverse hybrid legal entity, Source: Own presentation.

ForCo A, which is based abroad A, holds all shares in the German-based corporation - not shown graphically for reasons of simplification - as well as a permanent business institution abroad B, ForCo B, which has granted a license to the German corporation. The licence fees paid by the domestic corporation to ForCo B are tax deductible in Germany, but are not subject to taxation either abroad A or abroad B. This is due to the fact that, from the point of view of foreign countries B, ForCo B is tax transparent and foreign countries A are tax non-transparent. States A and B therefore allocate the right of taxation of the licence income to each other and consequently do not tax them. A deduction/non-inclusion result is obtained.

E. Double Deduction Incongruities

Contrary to what was shown in the previous section, the objective of hybrid mismatches in connection with double deduction mismatches is not to create a tax mismatch with respect to non-taxed income, but rather to achieve a tax mismatch in the form of a double deduction of operating expenses in several countries.[214] Thus, a double deduction mismatch also leads to a non-taxation or reduced taxation on the basis of a qualification conflict at the level of the substantive assessment.

Hybrid designs resulting in a double deduction incongruity are, in particular, cases in which a payment is made by a hybrid entity or by a dual-resident entity.[215]

I. Use of Hybrid Entities for a Double Deduction Incongruity

In the case of a hybrid legal entity treated as non-transparent by the State of residence but transparent in the State of the shareholders, a tax mismatch in the form of a double deduction of operating expenses results if the expenses are thereby taken into account for tax purposes both in the State of residence of the legal entity and in the State of the shareholders and the State of the shareholders does not allocate the expenses to a foreign exemption permanent establishment. [216]

II. Requirements for the use of hybrid entities for a double deduction incongruence

The use of hybrid entities to achieve a double deduction incongruity requires the cumulative existence of the following characteristics:

Deductible expenses in several states, taking into account in another state and expenses of a hybrid entity

The cumulative requirements to be met are analysed in the following sections.

1.Expenditure deductible in several states

Prerequisite are deductible expenses, which lead to a deduction of operating expenses under domestic tax law and reduce the income tax base.[217] In this context, the statements in the section on the use of hybrid entities in the inbound case regarding expenses apply accordingly. In addition, the expenses that are also taken into account in another state must be the same expenses that are deductible in Germany.[218] Also meets an accounting mismatch in which the same asset is both a taxpayer in Germany and another person.

is accounted for abroad, the prerequisite for the use of a double deduction incongruence due to the hybrid legal entity.[219] Although the identity of the expenses is missing here, since the AfA results from its own assessment basis.[220] Nevertheless, the AfA can be withdrawn for the economic asset in both states.

2. taking into account expenses in another state

It is also a requirement that the same expenses in more than one state can be deducted as operating expenses in a tax-reducing manner. The criterion is fulfilled if the tax base has been reduced in the participating state.[221]

But it depends on the actual treatment of the expenses, i.e. whether the expenses have actually reduced the tax base in more than one state. The mere fact that the expenses can be taken into account as operating expenses is not sufficient.[222] If at least one party who could claim the expenses is a personally tax-exempt legal entity, there is no double deduction result.[223] The same applies if the other state does not determine a tax base, since it does not collect income tax.[224]

Expenditure of a hybrid legal entity

The double deduction result is obtained if the taxpayer in Germany is a hybrid legal entity and this legal entity qualifies as non-transparent from the point of view of Germany, but as tax transparent from the point of view of the other participating state of the direct or indirect shareholder.[225] The expenses are tax deductible in Germany, since the legal entity is treated as a corporation for tax purposes. Due to the transparent treatment in the participating state, the expenses are also tax deductible.

II. Example of the use of hybrid legal entities for a double deduction result

The capital company, which is taxable without restriction in Germany, participates abroad in ForCo, which is qualified as a partnership according to the German legal type comparison, but the foreign country treats it as non-transparent for tax purposes. Foreign ForCo pays interest from a loan agreement to a foreign third party. From a German point of view, the interest expenses are deductible as operating expenses at the domestic corporation. Consequently, the interest expense is reduced

the tax base for both the domestic corporation and ForCo.

F. Imported Hybrid Mismatch

So-called imported hybrid mismatches are imported tax mismatches in which a tax mismatch in the form of a deduction/non-inclusion or double deduction result that has occurred between at least two foreign countries is relocated entirely or partially to the country on the basis of further debt agreements. The import does not take place via a hybrid design. Consequently, hybrid arrangements with imported tax mismatches can lead to negative qualification conflicts.

A hybrid design based on imported hybrid mismatches is suitable through the interposition of companies to circumvent regulations to prevent unwanted tax arrangements.[227] In practice, these designs can be found regularly in multinational corporations.[228]

I. Use of Imported Hybrid Mismatches

The subject of the use of imported tax mismatches are deduction/non-inclusion or double deduction results that have occurred between two foreign countries. Such an outcome may occur through a hybrid financial instrument concluded between the foreign participants. The funds received from the hybrid financial instrument are transferred via a loan to a German taxpayer. The interest payments of the domestic entity do not lead to a deduction/non-inclusion result, since between the domestic payer and the foreign recipient, the interest income of the foreign payee is subject to taxation.[229] There is also no double deduction result.

As a result, the tax mismatch is imported by passing on the deduction/non-inclusion result from the provision of financial resources by means of a loan to the domestic legal entity.[230] The domestic legal entity thus has tax deductible interest expenses without the interest income being taxed abroad.

II. Requirements for the use of imported hybrid mismatches

The use of imported hybrid mismatches requires the cumulative existence of the following characteristics in order to produce a deduction/non-inclusion or double deduction result.

Taxation mismatch between other states, expenses leading to the importation of taxation mismatch and confrontation of the resulting income and hybrid expenses.

The cumulative requirements to be met are analysed in the following sections.

1. tax mismatch between other states

The prerequisite is that there is a tax mismatch between other states. For this, the foreign creditor of the domestic taxpayer or another creditor must have so-called hybrid expenses.[231] Hybrid expenses are expenses incurred by the foreign creditor of the domestic taxpayer or another creditor from tax mismatches due to deduction/non-inclusion or double deduction results.[232] The hybrid expenses arising from such results may not only result from tax mismatches in which the creditor of the German taxpayer is directly involved, but are also included at other levels.[233] Thus, in the case of multi-stage business relationships, it is also sufficient if there are hybrid expenses for another creditor in whom the German taxpayer is only an indirect creditor. The hybrid expenses must be borne by the creditor of the German taxpayer. This is the case, for example, if a foreign legal entity in which the German taxpayer is directly involved finances another legal entity via a hybrid financial instrument.[234] The deduction/non-inclusion result generated abroad leads to hybrid interest expenses borne by the direct creditor of the German taxpayer.[235]

While in the previous sections for the use of deduction/non-inclusion and double deduction results the requirement of the income corresponding to the expenses had to be given, the use of imported hybrids mismatches presupposes income resulting directly or indirectly from these expenses. This means that not only income from the German taxpayer’s creditor, but also income from other creditors are recorded.

2. Expenditure leading to the import of tax mismatch

The relocation or importation of the tax mismatch from the deduction/non-inclusion or double deduction results from abroad into Germany requires expenses that are directly or indirectly associated with the foreign hybrid payment or deduction. hybrid expenses.[237] The costs suitable for import can in principle be any kind of expenses that arise on the basis of debt-law relationships and are borne by the German taxpayer. These are regularly royalties and service fees, interest and rental expenses.[239]

Opposing the resulting income and hybrid expenses

Another prerequisite for the use of imported hybrid mismatches is a link between the expenses of the German taxpayer and the expenses directly or indirectly leading to the tax mismatch. The concatenation of the tax mismatch can result, for example, from the fact that interest income from the German taxpayer flows to a taxpayer in the third country and is offset there with hybrid expenses that lead to a tax mismatch in relation to another third country.[241]

In this regard, the question arises as to the nature of the necessary link between the expenses which lead to the importation of the tax mismatch, or the resulting income and hybrid expenses. “Counter-survival” means offsetting hybrid expenses with income resulting from expenses incurred by the German taxpayer.[242] A calculation can result in two ways.

On the one hand, an offset is generally present if the expenses and income are included in the same tax base.[243] This is usually the case if the expenses and income are incurred by the same taxpayer and there is no regulation abroad in accordance with § 2a EStG, which leads to a tax offset prohibition.[244] However, offsetting is also possible if the income is incurred by a different legal entity than the hybrid expenses, but these can be offset against each other via group taxation.[245]

On the other hand, it follows from the requirement of offsetting that no counterparty is to be assumed if the hybrid expenses are already offset against income other than that resulting from the performance relationship with the German taxpayer. If the creditor of the German taxpayer has, in addition to the income from the performance relationship, further income that can be offset against the hybrid expenses, the offsetting of the hybrid expenses with these incomes excludes offsetting with the income from the performance relationship with the German taxpayer.[247] This results from the fact that expenses cannot be billed several times in terms of logic.

It is now unclear with which income the hybrid expenses are to be considered offset if the creditor of the German taxpayer has other income in addition to the income from the performance relationship. In this context, the priority is to offset hybrid expenses that are economically linked to hybrid expenses.[249] An economic connection with other income excludes a counterpart.[250] Consequently, for example, in the case of a refinancing, an economic connection must be assumed and the requirement of the counterpart is fulfilled.

II. Example of Imported Hybrid Mismatches

The use of tax mismatches between two foreign taxpayers and the associated import of the deduction/non-inclusion or Double-deduction result, can be illustrated as follows:

Figure 5: Imported Hybrid Mismatch, Source: Own presentation.

Foreign A resident ForCo A finances foreign B resident ForCo B through a hybrid financial instrument which represents debt from the point of view of State B and equity from the point of view of State A. Thus, a deduction/non-inclusion result arises between ForCo A and ForCo B, as foreign A qualifies the financing revenues at the level of ForCo A as profit distributions, while foreign B treats the underlying payments as interest expenses.

The funds received from ForCo A are transferred by ForCo B through a loan to ForCo C resident abroad, which in turn provides a loan to the corporation resident in the country. The interest payments of the domestic corporation to ForCo C do not lead to any deduction/non-inclusion result, since the interest income at the lender, abroad C, is subject to taxation and there is no qualification conflict between Germany and abroad C. The corresponding interest payments are made at the level of the respective borrowers - here the

domestic corporation, ForCo C and ForCo B- deductible interest expense. ForCo B is also able to offset the interest expenses against the interest income received.

Consequently, the domestic limited company is not directly involved in the tax mismatch between ForCo A and ForCo B. However, the interest payments of the domestic corporation to ForCo C indirectly contrast the income resulting from the expenses leading to the import of the tax mismatch with the hybrid expenses resulting from the tax mismatch between ForCo A and ForCo B. Accordingly, the existing deduction/non-inclusion result is imported into the country.

G. Summary Conclusions and Outlook

As stated at the outset, the objective of this discussion is to work out and analyze the literature-based elaboration of the possible uses of the qualification conflicts resulting from the double taxation agreements in connection with hybrid arrangements.

First of all, the systematic classification of qualification conflicts shows that the development levels of the qualification process are closely linked and any qualification conflicts that arise from the upstream levels are regularly carried into the agreement level, where they can in turn trigger qualification conflicts. Based on the results of the analysis, tax arrangements with hybrid financial instruments and hybrid legal entities are therefore based on different qualifications of the tax object or entity. tax entities and the diverging legal consequences of the States concerned resulting from the substantive assessment.

The elaboration of the tax aspects of different treatments of identical situations of participating states shows that, depending on the structure of the situation, the difference in tax treatment can lead to both negative and positive qualification conflicts and, as a result, leads to tax mismatches in the form of non- or reduced taxation and in the form of double taxation.

The analysis of the tax requirements for the use of qualification conflicts in the context of hybrid arrangements shows that, when cumulatively satisfied, hybrid arrangements can be used to create negative qualification conflicts arising from the differences between two tax systems in the substantive classification of financial instruments or entities. The consequence of such arrangements is regularly a deduction of operating expenses in one state with simultaneous non-taxation in the other state or a double deduction of operating expenses in both tax systems.

The use of systemic qualification conflicts by means of hybrid arrangements by the taxpayer and the resulting design-related non-taxation cannot be described as reprehensible; instead, the respective legislators, if they are dissatisfied with the tax planning activities, are obliged to prevent such situations through legislative gap closure. A legislative starting point for avoiding hybrid designs is the ATAD Directive implemented in § 4k EStG with the aim of combating hybrid designs.[251] The regulation requires a high degree of knowledge from the foreign

Tax law and cross-company cash flows,[252] so that it will be fundamentally difficult for taxpayers and the tax administration to ensure the uniform implementation of the standard. Therefore, it remains exciting which planning possibilities hybrid designs will offer in the future.

List of references

footnotes

[1] Rödl/Grube, in: Wabnitz/Janovsky/Schmitt WirtschaftsStrafR-HdB, Chapter 22, paragraph 6a.

[2] Kessler, in: Kessler/Kröner/Köhler KonzernStR, § 1 paragraph 13.

[3] BFH, judgment of 20.03.2002 – I R 63/99, IStR 2002, 568, 570; Rödl/Grube, in: Wabnitz/Janovsky/Schmitt WirtschaftsStrafR-HdB, Chapter 22, paragraph 10.

[4] Jacobs/Endres/Spengel, in: Jacobs Int. Corporate Taxation, p. 1055.

[5] Jacobs/Endres/Spengel, in: Jacobs Int. Business Taxation, p. 1258.

[6] Jacobs/Endres/Spengel, in: Jacobs Int. Business Taxation, p. 1258.

[7] Jacobs/Endres/Spengel, in: Jacobs Int. Corporate Taxation, p. 1258.

[8] Loschelder, in: Schmidt, EStG, § 4k paragraph 1.

[9] Häuselmann, in: Kessler/Kröner/Köhler KonzernStR, § 10 paragraph 201.

[10] Häuselmann, in: Kessler/Kröner/Köhler KonzernStR, § 10 paragraph 201; Kahlenberg, IStR 2019, 636, 636.

[11] Kahlenberg, IStR 2019, 636, 636 and 637.

[12] Lampert, in: Mössner Steuerrecht internationalbetrieber, paragraph 1247; Schnittker, in Wassermeyer/Richter/Schnittker Partnerships in International Tax Law, Recital 3.5.

[13] Lampert, in: Mössner Steuerrecht internationalbetrieber, paragraph 1248; Schwemmer, StuW2023, 82, 84.

[14] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht (Basics of Convention Law) paragraphs 96b and 96c.

[15] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht (Basics of Convention Law), paragraph 96c.

[16] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht (Basics of Convention Law), paragraph 96c.

[17] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht (Basics of Convention Law), paragraph 98.

[18] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht, paragraph 96e.

[19] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht, paragraph 96e.

[20] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht, paragraph 96e.

[21] New, in: Beck’s Handbook of partnerships, § 29, paragraph 33; Roser, in: Gosch, KStG, § 26, paragraph 30.

[22] Levedag v Obser, in: MHdB GesR II, § 58 paragraph 420.

[23] Levedag v Obser, in: MHdB GesR II, § 58 paragraph 420.

[24] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht, paragraph 96e.

[25] Levedag v Obser, in: MHdB GesR II, § 58 paragraph 421.

[26] Levedag v Obser, in: MHdB GesR II, § 58 paragraph 421.

[27] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht, paragraph 96e.

[28] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht, paragraph 96e.

[29] Kaminskiy, in: Frotscher/Geurts, EStG, § 4k Rz. 6 6

[30] Kaminskiy, in: Frotscher/Geurts, EStG, § 4k paragraph 6.

[31] Kaminskiy, in: Frotscher/Geurts, EStG, § 4k paragraph 7.

[32] Dörrfuß/Zembrod, FS Wassermeyer, Chapter 18, paragraph 2; Wiese/Dammer, DStR 1999, 867, 867.

[33] Herzig, IStR 2000, 482, 483; Häuselmann, in: Kessler/Kröner/Köhler KonzernStR, § 10, paragraph 202.

[34] Häuselmann, in: Kessler/Kröner/Köhler KonzernStR, § 10, paragraph 200.

[35] Häuselmann, in: Kessler/Kröner/Köhler KonzernStR, § 10 paragraph 200.

[36] Häuselmann, in: Kessler/Kröner/Köhler KonzernStR, § 10 paragraph 210.

[37] Häuselmann, in: Kessler/Kröner/Köhler KonzernStR, § 10 paragraph 216.

[38] BMF, letter of 28.04.2003, IV A 2-S 2750a-7/03, BStBl. I 2003, 292 Tz 24.

[39] Gosch, in: Gosch, KStG, § 8 paragraph 148.

[40] Gosch, in: Gosch, KStG, § 8 paragraphs 149 and 149a.

[41] Gosch, in: Gosch, KStG, § 8 paragraphs 149 and 149a.

[42] Häuselmann, in: Kessler/Kröner/Köhler KonzernStR, § 10, paragraph 219.

[43] Jacobs/Endres/Spengel, in: Jacobs Int. Business Taxation, p. 1271.

[44] Jacobs/Endres/Spengel, in: Jacobs Int. Business Taxation, p. 1271.

[45] Jacobs/Endres/Spengel, in: Jacobs Int. Business Taxation, p. 393.

[46] Jacobs/Endres/Spengel, in: Jacobs Int. Business Taxation, p. 393.

[47] Schober, in: Musil v Weber-Grellet, KStG, § 5 paragraph 4.

[48] Schober, in: Musil v Weber-Grellet, KStG, § 5 paragraph 4.

[49] RFH, judgment of 12.02.1930 – VI A 899/27, RFHE 27, 73, 73; BFH, judgment of 17.07.1968 – I 121/64, BFHE 93, 1, 1; BMF, letter of 26.09.2014, IV B 5 – S 1300/09/10003, BStBl. I 2014, 1258 paragraph 1.2.

[50] Nuremberg, in: Beck’s tax and balance sheet law lexicon, legal type comparison paragraph 1.

[51] Nuremberg, in: Beck’s tax and balance sheet law lexicon, legal type comparison paragraph 2.

[52] Nuremberg, in: Beck’s tax and balance sheet law lexicon, legal type comparison paragraph 2.

[53] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 6.

[54] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 6.

[55] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 6.

[56] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 6.

[57] BMF, letter of 19.03.2004, IV B 4 – S 1301 USA – 22/04, IStR 2004, 351, 351 to 354.

[58] Scheffbuch/Rüdenburg, IStR 2021, 546, 548.

[59] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 9.

[60] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 9.

[61] Jacobs/Endres/Spengel, in: Jacobs Int. Corporate Taxation, p. 395.

[62] Jacobs/Endres/Spengel, in: Jacobs Int. Business Taxation, p. 395.

[63] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 11.

[64] Linn/Maywald, IStR 2021, 825, 828.

[65] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 12.

[66] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 12.

[67] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 13.

[68] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 13.

[69] Linn/Maywald, IStR 2021, 825, 829.

[70] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 14.

[71] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 14.

[72] Philipp, IStR 2010, 204, 206.

[73] Jacobs/Endres/Spengel, in: Jacobs Int. Business Taxation, p. 396.

[74] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 23.

[75] Röder, IStR 2021, 795, 795 and 796.

[76] BMF, letter of 24.12.1999, IV B 4 – S 1300 – 111/99, BStBl. I 1999, 1076 Tz. 1.1.

[77] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraphs 24 and 25.

[78] Blumenberg/Dogshagen, in: Kessler/Kröner/Köhler KonzernStR, § 7 paragraph 26.

[79] Grotherr, IStR 2020, 773, 773.

[80] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 54; Baur/Schrenk/Ullmann, IStR 2023, 221, 221.

[81] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph. 54

[82] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph. 54

[83] Dürrschmidt, in: BeckOK UmwStG, UmwStG, § 20 para. 3026.

[84] Weber-Grellet, in: Musil/Weber-Grellet, RL 2011/96/EU, Art. Paragraph 25.

[85] Stöber, IStR 2020, 601, 603 and 604; Jacobs/Endres/Spengel, in: Jacobs Int. Corporate Taxation, p. 1275.

[86] Wernberger/Wangler, DStR 2022, 1896, 1897.

[87] Linn/Maywald, IStR 2021, 825, 825.

[88] Stephany, in: Leingärtner, Chapter 15, paragraph 116.

[89] Stephany, in: Leingärtner, Chapter 15, paragraphs 119 and 121.

[90] Stephany, in: Leingärtner, Chapter 15, paragraph 125.

[91] Stephany, in: Leingärtner, Chapter 15, paragraphs 125 and 126.

[92] Fehling/Linn/Martini, IStR 2022, 781, 784.

[93] Fehling/Linn/Martini, IStR 2022, 781, 784.

[94] Wassermeyer/Kaeser, in: Wassermeyer, OECD-MA 2017, Art. 5 paragraph 44.

[95] Kessler/Arnold, in: Kessler/Kröner/Köhler KonzernStR, § 8 paragraph 218.

[96] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 83.

[97] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 115.

[98] Lang, IStR 2010, 114, 117.

[99] Haase, IStR 2010, 45, 47; Wagemann, IWB 2022, 252, 252.

[100] Gündisch, IStR 2005, 829, 835; Wagemann, IWB 2022, 252, 252.

[101] Lang, in: Wassermeyer, DBA AT 2000 vor, Art. 1 paragraph 8; Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht, paragraph 113a.

[102] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht (Basics of Convention Law), paragraph 113b.

[103] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht, paragraph 113e.

[104] Lehner, in: Vogel/Lehner DTA, Basis des Abkommensrecht (Basic Law of the Agreement) paragraphs 113g and 113f.

[105] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht (Basic Law of the Agreement), paragraph 113g.

[106] Lang, in: Wassermeyer, DBA AT 2000 vor, Art. Paragraph 9.

[107] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht (Basic Law of the Agreement) paragraphs 96b and 96e.

[108] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht, paragraph 96e.

[109] Lehner, in: Vogel/Lehner DBA, Grundlagen des Abkommensrecht, paragraph 96e.

[110] Geberth, FS Wassermeyer, Chapter 9, paragraph 2.

[111] Grotherr, IStR 2020, 773, 775.

[112] Grotherr, IStR 2020, 773, 775.

[113] Andresen/Kiesel, DStR 2011, 745, 745; Neumann, in: Gosch, KStG, § 14 paragraph 416a.

[114] Pohl, in: Brandis v Heuermann, EStG, § 4k, paragraph 60.

[115] Schnitger/Oskamp, IStR 2020, 909, 910.

[116] Jacobs/Endres/Spengel, in: Jacobs Int. Corporate Taxation, p. 888.

[117] Fey, in: Beck’s tax and balance sheet law lexicon, double taxation, paragraph 1.

[118] Fey, in: Beck’s tax and accounting law lexicon, double taxation, paragraph 1.

[119] Fey, in: Beck’s tax and accounting law lexicon, double taxation, paragraph 35.

[120] Jülicher, in: Troll/Gebel/Jülich/Gottschalk, ErbStG, § 2 paragraphs 146 and 147.

[121] Frotscher, in: Frotscher Int. SteuerR, § 1 paragraph 5; Ismer, in: Vogel v Lehner DBA, Art. 23A and Art. 23B paragraph 3.

[122] Frotscher, in: Frotscher Int. SteuerR, § 1 paragraph 5.

[123] Loschelder, in: Schmidt, EStG, § 4k paragraph 1.

[124] Loschelder, in: Schmidt, EStG, § 4k paragraph 1.

[125] Loschelder, in: Schmidt, EStG, § 4k paragraph 1.

[126] Loschelder, in: Schmidt, EStG, § 4k paragraph 11.

[127] Clemens/Lewe, in: BeckHdB IFRS, § 11 paragraphs 13 and 14.

[128] Loschelder, in: Schmidt, EStG, § 4k paragraph 12.

[129] Loschelder, in: Schmidt, EStG, § 4k paragraph 11.

[130] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 43.

[131] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 49.

[132] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 54.

[133] Loschelder, in: Schmidt, EStG, § 4k paragraph 12.

[134] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 54.

[135] Pohl, in: Brandis v Heuermann, EStG, § 4k, paragraph 55.

[136] Wärmer/Hütten, in: BeckOK WpHR, WpHG, § 38 paragraph 128.

[137] Rengers, in: Brandis v Heuermann, KStG, § 8b, paragraph 138.

[138] Schmid, DStR 2022, 1142, 1145; Rengers, in: Brandis v Heuermann, KStG, § 8b, paragraph 138.

[139] Rengers, in: Brandis v Heuermann, KStG, §8b, paragraph 138.

[140] Rengers, in: Brandis v Heuermann, KStG, §8b, paragraph 138.

[141] Schnitger/Oskamp, IStR 2020, 909, 911.

[142] Schnitger/Oskamp, IStR 2020, 909, 911.

[143] Schnitger/Oskamp, IStR 2020, 909, 911.

[144] Rengers, in: Brandis v Heuermann, KStG, §8b paragraph 130.

[145] Rengers, in: Brandis v Heuermann, KStG, § 8b, paragraph 138.

[146] Kahlenberg v Oppel, IStR 2017, 205, 207.

[147] Schnitger/Oskamp, IStR 2020, 909, 911.

[148] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 65.

[149] Grotherr, IStR 2020, 773, 775 and 776.

[150] Zinowsky, IStR 2021, 500, 503.

[151] Zinowsky, IStR 2021, 500, 503.

[152] Loschelder, in: Schmidt, EStG, § 4k paragraph 19.

[153] Loschelder, in: Schmidt, EStG, § 4k paragraph 19.

[154] Schnitger/Oskamp, IStR 2020, 909, 915.

[155] Oellerich, in: Musil v Weber-Grellet, EStG, § 4k paragraph 12.

[156] Oellerich, in: Musil v Weber-Grellet, EStG, § 4k paragraph 12.

[157] Scheffbuch/Rüdenburg, IStR 2021, 546, 546 and 547.

[158] Scheffbuch/Rüdenburg, IStR 2021, 546, 546 and 547.

[159] Kahlenberg v Oppel, IStR 2017, 205, 207.

[160] Frotscher, in: Frotscher Int. SteuerR, § 6 paragraph 468.

[161] Frotscher, in: Frotscher Int. SteuerR, § 6 paragraphs 471 and 472.

[162] Schnitger/Oskamp, IStR 2020, 909, 917.

[163] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 88.

[164] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 89.

[165] BMF, letter of 20.06.2013, IV B 2 – S 1300/09/10006, IStR 2013, 752, 754.

[166] BMF, Letter of 20.06.2013, IV B 2 – S 1300/09/10006, IStR 2013, 752, 754.

[167] Zinowsky, IStR 2021, 500, 503.

[168] Zinowsky, IStR 2021, 500, 503.

[169] Zinowsky, IStR 2021, 500, 503.

[170] Schnitger/Oskamp, IStR 2020, 909, 917.

[171] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 88.

[172] Loschelder, in: Schmidt, EStG, § 4k paragraph 21.

[173] Schnitger/Oskamp, IStR 2020, 909, 911.

[174] Schnitger/Oskamp, IStR 2020, 909, 911.

[175] Kessler/Arnold, in: Kessler/Kröner/Köhler KonzernStR, § 8 paragraph 218.

[176] Hübner/Jesic/Lucht/Sschildmann, DStR 2023, 543, 544.

[177] Köhler, in: Kessler/Kröner/Köhler KonzernStR, § 8 paragraph 72; Loschelder, in: Schmidt, EStG, § 4k paragraph 22.

[178] BFH, judgment of 13.07.1999, VIII R 72-98, DStR 1999, 1808, 1809.

[179] BFH, judgment of 9 May 2000, VIII R 41-99, DStR 2000, 1553, 1553.

[180] Kahle, in: Beck’s Handbook of partnerships, § 7 paragraph 308.

[181] Kahle, in: Beck’sches Handbuch d. partnerships, § 7 paragraph 308.

[182] Loschelder, in: Schmidt, EStG, § 4k paragraph 22.

[183] Loschelder, in: Schmidt, EStG, § 4k paragraph 22.

[184] Schnitger/Oskamp, IStR 2020, 909, 918.

[185] Wacker, in: Schmidt, EStG, § 15 paragraph 401.

[186] Wacker, in: Schmidt, EStG, § 15 paragraph 401.

[187] Schnitger/Oskamp, IStR 2020, 909, 917.

[188] BFH, Decision of 18.05.2021, I B 76/20, IStR 2021, 971, 973; Linn/Maywald, IStR 2021, 825, 825 and 826.

[189] BFH, Decision of 18.05.2021, I B 76/20, IStR 2021, 971, 973; Linn/Maywald, IStR 2021, 825, 825 and 826.

[190] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 98.

[191] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 98.

[192] Zinowsky, IStR 2021, 500, 503.

[193] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 98.

[194] Linn, in: Wassermeyer, DBA USA 1989, Art. Paragraph 75.

[195] Linn, in: Wassermeyer, DBA USA 1989, Art. 1 paragraph 76.

[196] Schnitger/Oskamp, IStR 2020, 960, 960.

[197] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 114.

[198] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 120.

[199] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 115.

[200] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 115.

[201] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 115.

SEGMENT032 [202] Grotherr, IStR 2020, 773, 774.

SEGMENT033 [203] Grotherr, IStR 2020, 773, 774.

[204] Grotherr, IStR 2020, 773, 774 and 775.

[205] Schnitger/Oskamp, IStR 2020, 960, 962.

[206] Wassermeyer, in: Wassermeyer, OECD-MA 2017, Art. 7 paragraph 123.

[207] Wassermeyer, in: Wassermeyer, OECD-MA 2017, Art. 7 paragraph 123.

[208] Schnitger/Oskamp, IStR 2020, 960, 961.

[209] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraphs 54 and 55.

[210] Kahlenberg, IStR 2019, 636, 637.

[211] Loschelder, in: Schmidt, EStG, § 4k paragraph 26.

[212] Schnitger/Oskamp, IStR 2020, 960, 961.

[213] Schnitger/Oskamp, IStR 2020, 960, 962.

[214] Oellerich, in: Musil v Weber-Grellet, EStG, § 4k paragraph 25.

[215] Schnitger/Oskamp, IStR 2020, 960, 963.

[216] Schnitger/Oskamp, IStR 2020, 960, 962; Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 134.

[217] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 43.

[218] Zinowsky, IStR 2021, 500, 507.

[219] Zinowsky, IStR 2021, 500, 503.

[220] Zinowsky, IStR 2021, 500, 503.

[221] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 134.

[222] Schnitger/Oskamp, IStR 2020, 960, 963.

[223] Schnitger/Oskamp, IStR 2020, 909, 919.

[224] Schnitger/Oskamp, IStR 2020, 909, 919.

[225] Schnitger/Oskamp, IStR 2020, 909, 919.

[226] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 701.

[227] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 701.

[228] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 701.

[229] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 164.

[230] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 701.

[231] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 702.

[232] Loschelder, in: Schmidt, EStG, § 4k paragraph 34.

[233] Loschelder, in: Schmidt, EStG, § 4k paragraph 34.

[234] Hinz, IStR 2020, 397, 399.

[235] Hinz, IStR 2020, 397, 399.

[236] Hinz, IStR 2020, 397, 399.

[237] Hinz, IStR 2020, 397, 400.

[238] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 159.

[239] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 43.

[240] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 705.

[241] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 706.

[242] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 706.

[243] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 706.

[244] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 706.

[245] Loschelder, in: Schmidt, EStG, § 4k paragraph 34.

[246] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 707.

[247] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 707.

[248] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 708.

[249] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 708.

[250] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 708.

[251] Pohl, in: Brandis v Heuermann, EStG, § 4k paragraph 1.

[252] Schnitger/Oskamp/Kockrow, IStR 2021, 701, 708.