• German Domestic Anti-Abuse Rules Regarding the Taxation of Partnerships Possibly Unconstitutional
  • May 15, 2014 | Authors: Lodewijk P.W. Berger; Lyda Stone; Raymond J. Wiacek
  • Law Firms: Jones Day - Amsterdam Office ; Jones Day - Washington Office
  • In recent years, the German legislature introduced a number of special anti-abuse provisions that seek to deny certain tax benefits of a tax treaty or an EU tax directive in cases of perceived and actual abuse. The German domestic anti-treaty shopping provisions that deny such benefits dependent on whether the taxpayer meets certain specific substance requirements are a prominent example.

    The German Federal Tax Court (Bundesfinanzhof), the highest tax court, took the view that these provisions constitute unconstitutional treaty override and has referred a specific case to Germany's Constitutional Court (Bundesverfassungsgericht) and has requested that a specific anti-abuse provision applicable to the taxation of international partnerships be declared void.

    It is widely expected that the Bundesverfassungsgericht will follow the arguments of the Bundesfinanzhof and will decide that the specific provision is void and can no longer be applied. Such decision would potentially also affect other anti-abuse provisions included in German domestic law.