International Tax Planning (PDF download)

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					                                    International Tax Planning

                                        Wintersemester 2005/2006


                                               Dr. Thomas Borstell

Note:
The following documents are necessary for the cases:
-    current German tax laws
-    Double tax treaties: Germany-Austria, Germany-China, Germany-Switzerland, Germany-US (see
     “Beck´sche DBA-Sammlung” in the library of the University for hard copies or under
     http://www.bundesfinanzministerium.de/cln_01/nn_318/DE/Steuern/Veroeffentlichungen__zu__Steuerarte
     n/Internationales__Steuerrecht/001.html).
Students are asked to bring those documents with them to the lectures.



A.      Cases – part II................................................................................................................. 2
XIII. Hybrid Financial Instruments....................................................................................... 2
1.      Typical Silent Partnership ................................................................................................ 2
2.      Jouissance Rights in T-BV............................................................................................... 3
3.      Jouissance Rights in XY-GmbH ...................................................................................... 4
4.      Interest-free Loan ............................................................................................................. 5




                                                                                                                                        1
A. Cases – part II
XIII. Hybrid Financial Instruments
1.     Typical Silent Partnership
D-GmbH with its seat and place of management in Germany holds 100 % of the shares in
T-AG, a corporation with its seat and place of mind and management in Switzerland. Fur-
thermore, D-GmbH is a typical silent partner in T-AG from a tax point of view, and for the
capital granted receives a remuneration in the amount of 5 % of T-AG´s profits.




                                      D-GmbH


                                             100 %                  Typical silent
                                                                    partnership




                                         T-AG

Questions:
     (1) What are the tax consequences of the silent partnership in Switzerland? Note: Assume
         that the tax law treatment in Switzerland of typical silent partnerships is similar to the
         tax treatment according to German law. Other (tax or legal) rules (and potential prob-
         lems) of Switzerland should not be taken into consideration.
     (2) What are the tax consequences of the silent partnership in Germany?




                                                                                                 2
2.     Jouissance Rights in T-BV
T-BV with its seat and place of mind and management in Amsterdam grants its parent com-
pany, A-GmbH with its seat and place of mind and management in Cologne, jouissance rights
to participate both in the profits and in the liquidation proceeds of T-BV. According to Dutch
tax law, jouissance rights are debts.




                                       A-GmbH


                                            100 %               Jouissance rights




                                         T-BV


Questions:
     (1) What are the tax consequences in the Netherlands when T-BV pays a remuneration re-
         sulting from the jouissance rights?
     (2) How are those payments treated for tax purposes in Germany?
     Note: DTT-Netherlands needs not to be checked for answering the questions.




                                                                                            3
3.     Jouissance Rights in XY-GmbH
XY, a corporation with its seat and place of mind and management in Hong Kong, holds
100 % of the shares in its German subsidiary, XY-GmbH. XY-GmbH grants XY jouissance
rights to participate both in the profits and in the liquidation proceeds. It should be assumed
that under the tax laws of Hong Kong the jouissance rights qualify as debt.




                                         XY


                                           100 %              Jouissance rights




                                    XY-GmbH


Questions:
     (1) What are the tax consequences of the structure in Germany and Hong Kong?
     (2) How can the structure be improved?




                                                                                             4
4.     Interest-free Loan
US-Inc., with its seat and place of mind and management in the US, grants its German sub-
sidiary, T-GmbH, an interest-free loan in fiscal year 2003. The loan has to be paid back in
2006. T-GmbH has substantial loss carry forwards at the end of fiscal year 2002 and expects a
small operational profit in 2003 and 2004, but significant profits in 2005.
Assume that under US tax law, the interest-free loan is to be regarded as equity.




                                         US-Inc.


                                              100 %                Interest-free loan




                                        T-GmbH

Questions:
     (1) Does the interest-free loan qualify as debt or equity for German tax purposes?
     (2) What are the German tax consequences of the qualification?
     (3) What are the US tax consequences of the qualification?




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