• Service: Tax, Global Indirect Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 3/7/2014

Germany - “Treaty override” and cross-border interest payments to partner 

March 7:  A “treaty override” provision, with respect to cross-border payments of interest on a loan made a German partnership to the lending partner (in Italy), may be unconstitutional, pending a determination by Germany’s federal constitutional court.

A partner (a tax resident of Italy) of a German partnership granted a loan to the partnership and, in return, was paid loan interest. The German local tax office determined that special partner remunerations in the form of interest payments (as in this matter) were subject to German taxation as business profits under the special rule of § 50d (10) EStG— i.e., cross-border special partner remunerations are part of the partner’s business profits.

A late 2013 finding concludes that the rule under § 50d (10) EStG is unconstitutional as a “treaty override” provision. The case, therefore, is now pending review by the constitutional court.

Read a March 2014 report [PDF 265 KB] prepared by the KPMG member firm in Germany: German Tax Monthly

This KPMG report also contains discussions about:

  • Reorganizations: CJEU deems German exit tax rules compatible with EU law
  • Attribution of income within partnerships through assessment notices
  • Application of the earnings stripping rules in case of interest in a partnership
  • Real estate transfer tax
  • Entry into force of the FATCA agreement between Germany and the United States

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