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ECJ rejects German Anti-Treaty/ Directive-Shopping Rule September 7, 2018
ECJ rejects German Anti-Treaty/ Directive-Shopping Rule

The German anti-treaty/directive-shopping rule sec. 50d para. 3 German Income Tax Act (“ITA”) constitute an obstacle for many inbound investments.

In its landmark decision dated 14 June 2018 in Case GS, the European Court of Justice (“ECJ”) concluded that the German anti-treaty/directive-shopping rule is not in line with the European fundamental freedom of establishment and the EU-parent-subsidiary-directive.


The German anti-treaty/directive-shopping rule sec. 50d para. 3 German Income Tax Act (“ITA”) constitute an obstacle for many inbound investments. Generally, withholding tax on certain cross-border income such as dividends or royalties may be reduced or even eliminated for eligible persons based on the parent-subsidiary-directive or the relevant double tax treaty. However, in Germany an exemption or reimbursement of withholding tax requires an application to the German tax authorities. Only if the strict substance requirements as stipulated in sec. 50d para. 3 ITA are met, the application will be approved.

In particular holding companies are often not able to meet these conditions as it is required that the income recipient performs an own business activity which goes beyond the mere holding of participations. In the worst case that means that a withholding tax of 25 % is levied and no relief is granted. 

Already in December 2017, the ECJ ruled in Case Deister Holding that the former version of the German anti-treaty-shopping rule applicable until 2011 violates European law and is not in line with the parent-subsidiary-directive. 

Recent ECJ decision

In its recent decision of 14 June 2018 in Case GS, the ECJ came to the conclusion that also the current version of the German anti-treaty/directive-shopping rule violates the freedom of establishment and the parent-subsidiary-directive. 

According to the ECJ, a member state cannot predicate the parent-subsidiary-directive on certain conditions and presume a general fraud or abuse. Instead, the rule needs to be precise in preventing tax evasion or abuse, so that it complies with the principle of proportionality. Furthermore, it is essential that each case is examined individually and the taxable person has the possibility to provide counterevidence. 


Thus, there is generally a need of an amended law that considers these clarifications and is limited to wholly artificial constructions to be in line with European law. In response to the first decision regarding the former German anti-treaty/directive-shopping rule and obviously in anticipation of the latest court decision, the Federal Ministry of Finance has published a tax decree on 4 April 2018. According to this decree, which only considers dividend distributions, the German anti-treaty/directive-shopping rule for the years 2007 - 2011 is abolished and the current rule shall be relaxed. With regard to the latest ECJ decision, these changes in the application of the law appear to not be sufficient.

Tax payers should consider challenging rejected withholding tax refund claims based on the former and current sec. 50d para. 3 ITA. In case such tax refund claims have not yet been made, tax payers should request a refund of withholding tax withheld in a timely manner because of the time limitation for reimbursements.

Although the ECJ’s decision only deals with dividend distributions to shareholders resident in the EU, their rationale may also be transferable to other cross-border income items such as royalties and interest income. 

Further, based on settled ECJ case law, sec. 50d para. 3 ITA in its former and current version should also constitute an infringement of the free movement of capital. The rule is not limited in scope to shareholdings which give its holder definite influence over the company’s decisions. Thus, irrespective of the actual facts of the case, an inbound investor resident in a non-EU country may invoke the free movement of capital which geographical scope is not limited to the EU and challenge rejected withholding tax refund claims on the basis of the recent ECJ decisions.

Author: Dr. OIiver Middendorf and Dr. David Eberhardt, HLB Dr. Stückmann und Partner mbB

Talent scarcity: A top threat to business growth in the CEE region July 23, 2018
Talent scarcity: A top threat to business growth in the CEE region

For countries within Central and Eastern Europe (CEE), finding the right talent is an even greater worry.

When you ask business leaders across the globe what’s high on their agenda, chances are recruiting and retaining top talent is on the list. For countries within Central and Eastern Europe (CEE), finding the right talent is an even greater worry. Economic growth in this region is outperforming the EU average and businesses are growing fast. At HLB’s recent CEE regional meeting in Budapest, talent scarcity was identified as a top threat to business growth. We took a snapshot survey among finance and accounting graduates from Poland, the regions largest economy, in an attempt to better understand the views and expectations of young talent entering the CEE labour market. What are the take-aways for business leaders? What can businesses do to attract graduates and young professionals?

Promote a good work-life balance

When it comes to recruiting Millennials and Gen Z talent, businesses need to understand how important work-life balance is to this group. Our snapshot survey showed that 65% of graduates are aiming for a good balance between their personal and professional lives compared to only 17% for whom a high income is their main objective. Through building trust with your workforce and allowing for flexibility in time and space, you don’t just become more attractive as an employer, it is also the type of behaviour that drives innovation for your business. Just think about it for a moment. I’ve you are a business owner or part of the leadership team, does your brain just log-off when it’s 5 o’clock and you physically remove yourself from the office? It doesn’t! Same goes for highly engaged individuals working for you. It doesn’t matter where they physically are or what time of day it is, ideas to grow value for your business can spark anywhere. Don’t be afraid of allowing your people more flexibility.

Invest in tech to recruit tech talent

It seems like such a cliché thing to say, but young talent cares about the technology available to do their job. To them - and perhaps to all generations nowadays - it seems bizarre that their own personal devices (smart phones, tablets, voice assistants, you name it) are lightyears ahead of the corporate devices you’re using in the office. Often consumers apps have more UX design, functionality and capability than some commonly used, pricy enterprise software. If you want to recruit digital talent, invest in your technology.

Work on your employer branding

What is the reputation of your company from an employee’s perspective? Your employer brand describes your reputation as an employer, and its value proposition to your employees, as opposed to your more general corporate brand reputation and value proposition to customers. When we asked the question ‘when it comes to the reputation of a future employer, what is most important?’ 65% of students responded ‘friendly & respectful environment’ opposed to 13% who answered ‘authority & prestige’. Businesses that are most successful recruiting top talent are those who understand the value of employer branding.

Offer a competitive base salary

Just a friendly work environment that promotes work-life balance is not enough. There is more demand for top talent than there is supply. And in today’s globalised world, you’re competing with global employers who are happy to invest in talent mobility and drain talent from the region to other parts of the world. You can’t expect to recruit the best talent, if you’re not offering the right price. However, going back to my previous point, Millennials and Gen Z do take a good employer brand and friendly work environment into consideration when choosing an employer. It’s a package deal.

In short, overcoming the talent scarcity challenges in CEE is not easy. The corporate culture and tech element of the workplace, together with compensation and the basic needs or working conditions influence young CEE professional’s decision-making when choosing the right company to work for. These elements will separate the winners from the losers in CEE’s competitions for top talent. Does your organisation have a plan in place to implement these elements in your people strategy.

Enjoying the hot European summer? Here’s why farmers are hoping for rain! July 17, 2018
Enjoying the hot European summer? Here’s why farmers are hoping for rain!

 Europe is not the only market where the agricultural sector is under pressure.

While most of us are enjoying the long, hot summer all cross Europe, the hot weather may cause dark clouds to form over the agricultural sector and leave supermarket shelves empty in autumn. So far there is no reason to panic just yet, as last year’s harvest was fruitful and there is a good stock leftover. However, we are expecting the arable crops to yield less this year. In the coming months it will become clear what the proceeds will do to market prices.

Some important corn fields in Europe are suffering from long term drought, with continued warm weather forecasts for the coming days. Concerning messages about the drought are coming from all key grain regions across the continent. Even the main European wheat suppliers, mainly France and Germany, are expecting to harvest less this year. 

Europe is not the only market where the agricultural sector is under pressure. The trade war between China and the US pulled the price for soybeans down last week and thus took the whole grain market into its trap. Wheat prices temporarily were low, but there were sufficient reasons to justify a higher wheat price. Last week, the stock markets resumed their upward trend after new reports of a disappointing yields. In Russia, the persistent drought is damaging crops. Western European suppliers are also fearing the yields will be considerably lower than previously expected. Take the wheat fields in Germany for example. While at first it seemed that mainly the fields in the north and east of Germany suffered severely from the heath, now expectations for the whole of Germany have been adjusted downwards. In addition to the yield of wheat, the yield of rye is also keeping farmers up at night. Even in France, the region that has so far stayed clear of issues, the forecast is that less product will be harvested this year. 

In the course of next week, the wheat harvest in Europe will gradually start; more than two weeks earlier than usual. Then it will become clear what the actual effect of the long, hot summer has been on the crops. If all goes well, we should see the market return back to normal. But if further alarming reports continue to spread, the Matif could go through the roof and surpass the €200 mark.


Author: Jan Coppens, HLB Netherlands