News has been published for readers with a business interest in Germany. This newsletter informs about latest changes in tax and legal issues including changes in real estate transfer tax, State aid proceedings against Germany by the EU Commission, clarification regarding certifications performed by foreign notaries, etc.

1. ISSUE 1 - APRIL 2014
WWW.BDO.DE
GERMAN
TAX & LEGAL NEWS
AIFM Tax Adjustment Act gazetted Admissibility of certification by
foreign notary
Treaty override referred to
Constitutional Court
Editorial
Welcome to the first issue of the BDO
Germany Tax & Legal News. With this
newsletter, we would like to keep you
informed about current topics in
connection with tax and legal issues
which we hope are of interest especially
to non-German readers with a (business)
interest in Germany.
We will be covering new legislation,
court decisions, ministry bulletins etc. In
this issue, you will read about the latest
changes in tax law as a result of the AIFM
Tax Adjustment Act. The law introduced
new provisions which preclude the
immediate realization of undisclosed
burdens as well as a provision that allows
German tax authorities to exchange
information with foreign (tax) authorities
without notifying the taxpayer, e.g. for
FATCA purposes. Other topics include new
jurisdiction on German real estate
transfer tax, State aid proceedings against
Germany by the EU Commission, and
clarification regarding certifications
performed by foreign notaries. Should you
have any questions regarding these or
other topics, our BDO specialists are
happy to provide further information. We
hope you will enjoy reading this issue and
welcome any comments or suggestions.
Yours sincerely,
BDO
CONTENTS
1. AIFM Tax Adjustment
Act gazetted 2
2. Levying of real estate
transfer tax (RETT) after
change of partners in real
estate-owning partnership 2
3. European Commission:
State Aid proceedings
re. German surcharge
according to Renewable
Energy Act (EEG) 3
4. Employer‘s contribution
for foreign EU/EEA/Swiss
public Health insurance of
employee 3
5. Admissibility of certification
by foreign notary 4
6. Wage resulting from sale of
participation rights 4
7. Treaty override referred to
Constitutional Court 5
8. Deductibility of EU fines 5

2. Tax & Legal News 2
1. AIFM TAX ADJUSTMENT ACT GAZETTED
The new AIFM Tax Adjustment Act was passed in
December 2013. The new regulations regarding the
international exchange of information and the
limitation on utilizing undisclosed burdens will
probably be especially important for foreign
companies.
Exchange of information without notifying the
parties concerned
Based on the new regulation of § 117c of the German
Fiscal Code (AO) audit, inquiry and reporting
obligations can now be arranged in consideration of
the particularities of the respective agreements under
international law in detail. This enables the
implementation of domestically applicable agreements
under international law regarding the promotion of tax
honesty where international facts and circumstances
are involved.
The Federal Ministry of Finance is thereby authorized
to set regulations for data transmission to the Federal
Tax office and the forwarding of such data to the
responsible authority of another contracting state. In
the scope of this data transmission, the taxpayer
concerned is not to be heard.
The new regulation is especially designated to assist in
implementing the FATCA agreement concluded,
amongst others, between Germany and the USA.
German financial institutes are obliged to make
information about customers available to the IRS if
said customers are subject to taxation in the USA or
show any relation to US taxes. The current § 117c AO,
however, is not limited to the EU or FATCA, meaning it
can also be applied in relation to third countries.
Realization of undisclosed burdens
The German tax law includes various regulations
governing that certain (contingent) liabilities on the
tax balance sheet either cannot be recognized or have
to be recognized at lesser value than on the
commercial balance sheet.
This results in undisclosed burdens. In accordance with
the more recent decisions of the Federal Fiscal Court,
companies were allowed to realize such undisclosed
burdens with a tax-reducing effect if a third party
assumes such liabilities either legally or economically,
as such third party assuming the liability does not have
to take the recognition-related limitations into
account. This jurisdiction especially enabled affiliated
companies to shift liabilities and thus granted them
significant structuring potential.
The legislator therefore introduced an extension of
the expense realization. In accordance with § 4f of the
German Income Tax Act (EStG), respective operating
expenses incurred cannot be immediately deducted
for tax purposes, but have to be allocated to a period
of 15 years. In the first balance sheet after assuming
the liability, the acquiring party needs to observe the
special tax regulations regarding the recognition of the
provision in the tax balance sheet that originally
applied to the seller (§ 5 sec. 7 EStG). The resulting
profit can also be allocated to the following 14 years
by way of setting up a reserve.
The new regulations are applicable for fiscal years
ending after 28 November 2013.
To the directory
2. LEVYING OF REAL ESTATE TRANSFER TAX (RETT) AFTER CHANGE OF PARTNERS IN
REAL ESTATE-OWNING PARTNERSHIP
Certain legal acts, like the purchase of real estate or
the conveyance of property in other cases are subject
to real estate transfer tax (RETT). Many of these legal
acts require a certain form that involves a notary, who
will also inform the parties of their obligations
regarding RETT.
On the other hand, a purchase of an interest in a
partnership that owns real property is possible without
observing a certain form, just like joining or leaving
such a partnership or transferring an interest in it. In
the absence of a notary, the partners must pay
attention to their RETT obligations themselves. The
purchase of an interest is generally not subject to
RETT, because there is no change of ownership.
However, if the partnership situation changes in such a
way that, directly or indirectly, 95 % of the interest in
the partnership is transferred to new partners within
five years, then this is deemed to be a transfer of the
real estate to a new partnership, resulting in RETT (§ 1
sec. 2a RETT-Act).
Partnerships are not considered to be legal persons.
However, they can have legal ownership in real estate
or other business assets, in which case the partners
have joined ownership over these assets
(Gesamthand).
When real estate is transferred from the joint
ownership of one partnership to another joint
ownership (possibly just due to the fiction in § 1
sec. 2a RETT-Act), the tax is not levied to the extent
the ownership structure is identical (§ 6 sec. 3
sentence 1 RETT-Act). This privilege will lapse
retroactively, however, if the interest of a partner
involved in such a transfer changes within the
following five years. In its decision of
25 September 2013, the Federal Fiscal Court (case no.

3. Tax & Legal News 3
II R 17/12) had the opportunity to comment on two
problems occurring in this context.
1. If a partner/joint owner disposes of his interest in
the partnership in favour of his spouse or a relative in
the direct line or by gift, this action does not affect
the privilege and will not lead to the levying of RETT,
provided the beneficiary himself maintains an
unreduced interest in the partnership/joint ownership
for a period of five years. This period is calculated
from the (fictitious) transfer of ownership from the
one joint ownership to the other - not the transfer to
the beneficiary.
2. The opposite applies, if the partnership/joint
ownership which acquires real estate performs a
change in legal form into a corporation. In this case,
the conditions for non-levying of RETT lapse
retroactively. By the change in legal form the
entitlement in the assets of the joint ownership is
lost, which is essential for the RETT exemption.
To the directory
3. EUROPEAN COMMISSION: STATE AID PROCEEDINGS RE. GERMAN SURCHARGE
ACCORDING TO RENEWABLE ENERGY ACT (EEG)
The German Renewable Energy Act (EEG) provides for
the preferred feeding of electricity produced from
renewable energy sources into the electricity grid and
guarantees to its producers a fixed feed-in tariff.
With the EEG-surcharge, costs arising from the
promotion of electricity production from renewable
energy sources are divided among the end consumers
of electricity. The amount of the surcharge results
from the difference between receipts and
expenditures that arise from the use of electricity
from renewable energy sources. However, energy-
intensive users from the manufacturing sector as well
as track railways are exempt completely from the
EEG-surcharge due to a special compensation scheme
in the EEG in order to protect their international and
intermodal competitiveness.
In December 2013, the European Commission initiated
State aid proceedings against the Federal Republic of
Germany. It is expected that the EEG and especially
the cap on the EEG-surcharge in favour of energy-
intensive users constitutes an unlawful and
incompatible State aid. In contrast, the German
Federal Government considers that no direct or
indirect transfer of State resources is concerned, since
the benefit granted is solely financed from private
resources. The government stresses furthermore, that
the EEG does not impose the EEG-surcharge on the end
users as it is up to the electricity companies whether
they will pass on these costs to the end consumers.
The Federal Republic of Germany has meanwhile
brought an action against the State aid proceedings in
order to protect its rights. Nevertheless, it still aims at
finding an amicable solution together with the
European Commission.
To the directory
4. EMPLOYER‘S CONTRIBUTION FOR FOREIGN EU/EEA/SWISS PUBLIC HEALTH
INSURANCE OF EMPLOYEE
The intense connection of markets results in an
increase of cross-border secondments, especially
where groups of companies are concerned. Employees
and employer need to take the tax and social security
laws of the “destination country” into account just as
much as those of the home country. In Germany legal
uncertainties arose in cases where employees,
especially on management level, were sent to
Germany from abroad and the domestic employer
continued payments to the foreign insurance.
On 12 January 2011, the Federal Fiscal Court (case no.
I R 49/10) decided that health insurance allowances
paid by a domestic employer for the employee’s
statutory French health insurance are not tax exempt
in terms of § 3 no. 62 of the German Income Tax Act
(EStG). The court stated that a relevant legal
obligation of the employer to pay the allowance
necessary for the tax exemption does not exist.
With circular dated 30 January 2014 (Gz. IV C 5 – S
2333/13/10004), however, the Federal Ministry of
Finance announced that contrary to the opinion of the
tax courts the Federal Ministry of Health and the
Federal Ministry of Labor and Social Affairs believe
that the employer is obliged to pay allowances under
social law. Being a voluntary member of a foreign
statutory health insurance has to be treated like being
a (voluntary) member of a domestic health insurance
at least within the EU, the EEA and where Switzerland
is concerned.
Thus, allowances paid to an employee for his
insurance with a foreign statutory health insurance at
least within the states listed above are subject to the
tax exemption of § 3 no. 62 EStG.
To the directory

4. Tax & Legal News 4
5. ADMISSIBILITY OF CERTIFICATION BY FOREIGN NOTARY
Notary fees in Germany have been raised notably with
effect from August 2013. This raise also affects actions
required by corporate law. Consequently, more
attention will again be paid to thoughts of performing
the transfer of shares in a German limited liability
company (GmbH) abroad, especially in Switzerland,
for financial reasons. A transfer of shares performed
abroad is formally effective, if it either meets the
formal requirements prescribed by German law or if it
meets equivalent formal requirements established by
the foreign state.
The Higher Regional Court of Munich (OLG München,
case no. 31 Wx 8/13) had held in February 2013 that a
foreign notary is not entitled to prepare a new list of
the shareholders in accordance with § 40 sec. 2
Limited Liability Companies Act (GmbHG) after
certifying an assignment of shares outside Germany. In
these cases, only the managing directors were
competent and obligated to prepare the list. In
contrast to this opinion, in 2011, the OLG Düsseldorf
(case no.I-3 Wx 236/10) had granted this power to a
foreign notary and with that also confirmed the
admissibility of certifications by foreign notaries in
general.
With a decision of 17 December 2013 (case no. II ZB
6/13), the Federal Court of Justice (BGH) has now
explicitly clarified that foreign notaries are also
allowed to hand in lists of shareholders to the
commercial register. There has been no change
resulting from amendments of the GmbHG of
23 October 2008 (MoMiG) with regard to the
effectiveness of certifications that are performed
abroad. The registration court is not entitled to reject
a list of shareholders solely because it was submitted
by a notary who has his seat in Basel/Switzerland.
Even after the MoMiG entered into force a
certification required by the GmbHG may be
performed by a foreign notary as long as the foreign
certification is equivalent the German one.
To the directory
6. WAGE RESULTING FROM SALE OF PARTICIPATION RIGHTS
In the course of the reorganization or acquisition of an
enterprise it is often intended that employees
participate in the future success of that enterprise.
This measure may serve to strengthen employee
loyalty to the enterprise. In addition to profit-sharing
schemes a participation in the equity or debt capital
can be considered. A mixture of the two is the
granting of participation rights. Depending on the
chosen arrangement there are different tax
implications - especially but not only with regard to
the return of the participation rights.
The Federal Fiscal Court (BFH) decided a case on
5 November 2013 (case no. VIII R 20/11) in which a
managing director was supposed to participate in the
long-term success of the company and received a
certain number of participation rights. At the end of
the agreed term, these rights could only be sold to the
company. Additionally, the surrender value had been
fixed at very low value in case the employment
relationship was terminated by giving notice.
After the end of the term and upon ending the
employment by mutual agreement, the managing
director received the agreed surrender value. He
claimed that the resulting surplus was an - at that
time non-taxable - increase in the shareholding of the
company. The BFH did not agree with this. In the
Court’s opinion, the surplus generated by the
retransfer of the participation rights was induced by
the employment relationship of the managing director
and was therefore to be taxed as wages.
According to the respective contracts the value of the
participation rights granted could not develop
separately and independently from the employment
relationship. Here, the special contractual conditions
are decisive: the participation rights could only be
returned to the company and the surrender value was,
from the start, dependent on the kind of termination
of the employment relationship. Had the employment
relationship terminated without observing any notice
period due to culpable conduct by the managing
director, the relationship regarding the participation
rights would also have ended with immediate effect.
As far as the rights holder received an advantage from
the repurchase of the participation certificates this
advantage was not induced by a separate and
independent special rights relationship. The amount of
the advantage was dependent on the managing
director’s conduct as an employee of the company. It
was therefore remuneration for his performance and
was to be taxed as wages.
To the directory

5. Tax & Legal News 5
7. TREATY OVERRIDE REFERRED TO CONSTITUTIONAL COURT
In accordance with German law, a non-resident
partner of a German partnership can receive so-called
special allowances from the company, e.g. for his
work for the company or the granting of a loan. With
§ 50d sec. 10 of the German Income Tax Act (EStG),
Germany has a provision that is supposed to govern
the taxation of such special allowances in cross-border
cases. If a DTT applies, special allowances are deemed
company income instead of salaries or interest “for
the purpose of the application of the treaty”.
Germany would then have the right of taxation
regarding such income.
This provision is highly disputed and has now become
subject of a referral to the Federal Constitutional
Court. The dispute concerns an Italy-based partner of
a German KG (Kommanditgesellschaft – limited
partnership) who granted a loan to said KG. He wanted
to pay taxes on the interest income in Italy. The
German tax office (also) imposed taxes in Germany on
the basis of § 50d sec. 10 EStG.
In accordance with German case law, the decisive
provision does not comply with the German
constitution, but unilaterally overrides the
internationally agreed qualification of interest
payments on loans; the international treaty is thus
violated. In accordance with the respective applicable
DTT, such income much rather constitutes salary or
interest. As a result, the partner’s country of
residence, not Germany, would have the right of
taxation.
With resolution of 11 December 2013 (case no. I R
4/13), the Federal Fiscal Court thus (again) referred
the question whether the legislator violates
constitutional law with a so-called treaty override to
the Federal Constitutional Court.
Note: Since the German legislator has been using the
disputed means of the treaty override again and again
in the recent past, it can be expected that other
regulations will also have to be measured by these
standards.
To the directory
8. DEDUCTIBILITY OF EU FINES
Fines imposed by the institutions of the European
Union, e. g. the European Commission (EC), constitute
business expenses; nevertheless, they are non-
deductible for tax purposes according to the German
Income Tax Act (EStG). However, this restriction does
not apply insofar as the fine only “skims” the
economic advantage received from breaking the law
and insofar as the income tax regarding the economic
advantage has not been deducted. Thus, the exception
from the non-deductibility rule requires that the fine
contains a so-called “skimming-amount”.
The idea that elements of general and specific
deterrence both play a part in the fines imposed in
order to punish the infringement of competition law
does not exclude the possibility of having a
“skimming-amount”.
The EC is entitled to impose fines against enterprises
and associations of undertakings, inter alia, if they -
like in the case at issue - deliberately or negligently
infringe EU law. In these cases, the fine for each
enterprise or each association of undertakings involved
in the infringement must not surpass 10 % of their
respective total turnover of the preceding year. This
limitation to a maximum amount is supposed to
prevent the imposition of fines that enterprises will
presumably not pay; a connection with skimming
economic advantages cannot be gathered from the
provision.
The case which was decided by the Federal Fiscal
Court on 7 November 2013 (case no. IV R 4/12) did not
involve a “skimming-amount”. The amount of the fine
was first calculated on the basis of certain criteria
(basic amount). Since the basic amount was surpassing
the limit of 10 % of the total turnover, the fine was
subsequently reduced to this maximum amount.
However, as stated above, the maximum amount does
not intend to skim the economic advantage. In such a
context, a potential skimming off of excess profits
may only occur if “aggravating circumstances” are
taken into account, which lead to an increase of the
basic amount. In the case at issue, however, no such
increase of the basic amount existed.
If the basis of assessment for a fine that the EC
imposes for an infringement of competition law only
depends on the basic amount (possibly reduced to the
maximum amount), there is no “skimming-amount” to
be found and the fine therefore cannot be deducted
partially as business expense.
To the directory

6. HAMBURG (HEADQUARTERS)
Fuhlentwiete 12
20355 Hamburg
Phone: +49 40 30293-0
Fax: +49 40 337691
hamburg@bdo.de
BERLIN
Katharina-Heinroth-Ufer 1
10787 Berlin
Phone: +49 30 885722-0
Fax: +49 30 8838299
berlin@bdo.de
BIELEFELD
Viktoriastraße 16-20
33602 Bielefeld
Phone: +49 521 52084-0
Fax: +49 521 52084-84
bielefeld@bdo.de
BONN
Potsdamer Platz 5
53119 Bonn
Phone: +49 228 9849-0
Fax: +49 228 9849-450
bonn@bdo.de
BREMEN
Bürgermeister-Smidt-Str. 128
28195 Bremen
Phone: +49 421 59847-0
Fax: +49 421 59847-75
bremen@bdo.de
BREMERHAVEN
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27580 Bremerhaven
Phone: +49 471 8993-0
Fax: +49 471 8993-76
bremerhaven@bdo.de
DORTMUND
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44141 Dortmund
Phone: +49 231 419040
Fax: +49 231 4190418
dortmund@bdo.de
DRESDEN
Am Waldschlößchen 2
01099 Dresden
Phone: +49 351 86691-0
Fax: +49 351 86691-55
dresden@bdo.de
DUSSELDORF
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40474 Dusseldorf
Phone: +49 211 1371-0
Fax: +49 211 1371-120
duesseldorf@bdo.de
ERFURT
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99096 Erfurt
Phone: +49 361 3487-0
Fax: +49 361 3487-19
erfurt@bdo.de
ESSEN
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45136 Essen
Phone: +49 201 87215-0
Fax: +49 201 87215-800
essen@bdo.de
FLENSBURG
Am Sender 3
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Phone: +49 461 90901-0
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flensburg@bdo.de
FRANKFURT/MAIN
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60314 Frankfurt am Main
Phone: +49 69 95941-0
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frankfurt@bdo.de
FREIBURG I. BR.
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79098 Freiburg i. Br.
Phone: +49 761 28281-0
Fax: +49 761 28281-55
freiburg@bdo.de
HANNOVER
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30159 Hannover
Phone: +49 511 33802-0
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hannover@bdo.de
KASSEL
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KIEL
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COLOGNE
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LEIPZIG
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leipzig@bdo.de
LÜBECK
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luebeck@bdo.de
MUNICH
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81373 Munich
Phone: +49 89 55168-0
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muenchen@bdo.de
ROSTOCK
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rostock@bdo.de
STUTTGART
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WIESBADEN
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WORLDWIDE
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Fax: +32-2 778 01 43
www.bdointernational.com
BDO AG Wirtschaftsprüfungsgesellschaft, a German
company limited by shares, is a member of BDO Interna-
tional Limited, a UK company limited by guarantee, and
forms part of the international BDO network of indepen-
dent member firms.
BDO is the brand name for the BDO network and for
each of the BDO Member Firms.
This publication has been carefully prepared, but it has
been written in general terms and should be seen as
broad guidance only. The publication cannot be relied
upon to cover specific situations and you should not act,
or refrain from acting, upon the information contained
therein without obtaining specific professional advice.
Please contact BDO AG Wirtschaftsprüfungsgesell-
schaft to discuss these matters in the context of your
particular circumstances. BDO AG Wirtschaftsprüfungs-
gesellschaft, its partners, employees and agents do not
accept or assume any liability or duty of care for any loss
arising from any action taken or not taken by anyone in
reliance on the information in this publication or for any
decision based on it.
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berg • Executive Board: WP StB RA Dr. Holger Otte (Chair-
man)•WPStBRAWernerJacob(ViceChairman)StBFrank
Biermann • WP StB Christian Dyckerhoff • WP StB Klaus
Eckmann•WPStBDr.ArnoProbst•WPStBManuelRauch-
fuss • WP StB Kai Niclas Rauscher • WP StB Roland Schulz
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7. CONTACT
BDO AG
Wirtschaftsprüfungsgesellschaft
Andrea Bilitewski
Partner
Head of Policy Department Tax and
Business Law Consulting
Hamburg
Phone: +49 40 30293-209
andrea.bilitewski@bdo.de
Gerlinde Seinsche
Partner
Head of Department International Tax Law
Frankfurt
Phone: +49 69 95941-256
gerlinde.seinsche@bdo.de
www.bdo.de