Problems relating to Trade and Investment on Germany
14. Taxation Systems |
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Issue |
Issue details |
Requests |
Reference |
| (1) High Income Taxes | - Personal income tax (PIT) of Germany is higher than that of Japan by nearly 10%, and the scope of PIT is so broad that cost of expatriates to Germany is relatively high, heavily burdening enterprises that guarantee net amount of wages to expatriates. - German income tax is high at 40%, and fringe benefits are also taxable. Tax burden is heavy upon enterprises. (Note) Fringe benefit: -- Economic benefits such as benefit package, including welfare that enterprises grant to employment income earner other than wages and salaries. |
- It is requested that GOG: -- reduces income tax rate, and -- excludes fringe benefits from taxable income. |
- Income Tax Act - Personal Income Tax Act |
| (2) Double Taxation of Income Tax | - Income tax is levied both in Japan and Germany upon a German trainee who got transferred to Japan (restricted to branch office) to receive training. | - Japanese tax office holds that the German working in Japan is taxable in Japan, while German tax office holds the German is taxable in Germany as the German works for the benefit of Germany in Japan. | |
| (3) Withholding Tax/Double Taxation Problems under Japan-FRG Tax Treaty | - External remittance of dividends from FRG to Japan is subject to 15% withholding tax. In light of exemption or reduction of withholding tax granted in other EU member states, the environment for investment into FRG largely lags behind. - GOG levies 15% withholding tax on the dividends received from a firm's subsidiary in Germany. Compared to the majority of other EU member states that have either reduced or exempted withholding tax under the tax treaty, the environment of Germany lags behind as a target country for foreign investment. - Germany tax law provides for withholding tax (capital gain tax), therefore, 15% withholding tax levy applies even if the going Japan- Germany tax treaty were applied. - Under the going Japan- Germany tax treaty, withholding tax of 15% is levied on dividends a member firm receives from MFS in Germany. In Japan, with the introduction of "Dividend Tax Exemption Scheme", withholding tax levied on dividends received from overseas subsidiary (MFS) is excluded from the foreign tax deduction scheme. In the end, a member firm, MFS' shareholder, must absorb the amount corresponding to the withholding tax. - MFS is compelled to forego remittance to Japan headquarters for dividends, subject to 15% withholding tax. The mid-term funding projection is frustrated by the withholding tax issue on dividends. - Under Japan-Germany tax treaty 15% withholding tax is payable on dividends received from MFS (member firm's subsidiary), forming double taxation on profits. - It is requested that for avoidance of double taxation, GOG repeals as soon as possible withholding tax of 15% on dividends. - Withholding tax remains payable on dividends paid to Japan head office. Withholding tax remains payable even now. Filing request for reduction or withdrawal is to no avail. Withholding tax of 15% remains payable. - MFS is under obligation of the going Japan- Germany tax treaty to pay to GOG 15% withholding tax on dividend remitted to member firm in Japan, parent of MFS. - Unjustifiable treatment exists on royalty payment from Germany to Japan of technical assistance fee. While 10% is deductible, it is hardly sufficient. - The Current Law dictates that the authorities of the both countries to use "the best efforts" for resolution and expulsion of double taxation between the two countries. In light of the fact that EU taxation authorities employ "the Mutual Agreement Procedure (MAP)" for expulsion of double taxation for 3-years, "the Exercise of Best Efforts" is considered insufficient. |
- Since December 2011, it seems negotiation on amending bilateral tax treaty has been under way on and off intermittently between the two countries. It is requested that GOJ and GOG materialise the amendment just as soon as possible. - While negotiation on amending tax treaty continues, it is requested that GOJ and GOG lose no more time in materialising the amendment in order to improve the environment for investment into Germany. - While a member firm is aware of the going negotiation for amendment of Japan-Germany tax treaty, It is requested that GOJ and GOG expedite the negotiation to reduce to zero withholding tax (capital gain tax). - It is requested that GOG and GOJ take steps to repeal withholding tax by amending Japan-Germany tax treaty. - To begin with, it is requested that both GOG and GOJ agree on the tax reduction schedule (tax rate reduction) under the tax treaty. - It is requested that GOG/GOJ expedite enforcement of the amended bilateral tax treaty. - It is requested that GOG/GOJ amends Japan-Germany tax treaty. - It is requested that GOJ approaches GOG to continue the tax treaty amendment negotiation to enable its early resolution. - It is requested that new Japan-FRG tax treaty (on 0% withholding tax on dividend) is ratified as soon as possible. - It is requested that GOG reduces withholding tax rate to 0% to secure the competitive taxation environment (e.g. U.K.) - It is requested that under the OECD BEPS Initiative, multi-national measures for avoidance of double taxation are established. These multi-national measures will obviate the need for renegotiation the tax treaty, enabling acceleration of the entire process. |
- Income Tax Act - Japan-Germany Tax Treaty - Japan- Germany Tax Treaty, Article 10(2) - Anti-avoidance provision of Section 50 d paragraph 1a Tax law. Section 44d / 43 b Income Tax low - Amend the German and Japan Double Tax Treaties to reduce the impact of local legislation - Various laws in each EU country and Japan |
| (Improvement) - In December 2011, GOG and GOJ inaugurated negotiation for renewal of Japan-Germany tax treaty. - In December 2015, new Japan/FRG tax treaty was signed. It exempts or reduces withholding tax on gains from investment (Dividends, Interests, Utility). |
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| (4) Discriminatory Treatment on Withholding Tax between Domestic and Foreign Enterprises | - Withholding tax levied upon dividends received by a domestic corporate shareholder in Germany is subject to tax deduction, therefore, almost the total amount of tax paid is refunded to the domestic corporate in Germany. On the other hand, on the dividends received by a foreign corporate, if the total amount of the German withholding tax is not deducted, that portion is payable by the foreign shareholder in the end. | - It is requested that GOG takes steps to dissolve its discriminatory treatment between the domestic German enterprises and foreign funded enterprises in favour of the former, relative to withholding tax. | - The Principle of Free Movement of Capital (Case Ref. C-284/09 Commission, Germany) |
| (5) Complexity of the VAT Refund Procedures | - Under the EU Directive, the EU Member States have been implementing the value added tax system (VAT) at similar tax rates and in the similar tax levy methods, despite the fact that the taxation system is a matter within the sovereign power of each Member State. However, complexity remains on the VAT tax return such as reverse charge. This is quite a burden indeed to the taxpaying enterprises. | - It is requested that EU takes the leadership in achieving the full harmonisation of the VAT taxation system and simplification of declaration procedure within the EU Member States, and that each Member State joins the band wagon to reach this common goal. | - Customs Act - EU Directives |
| (6) More Rigorous VAT Exemption Requirement | - Despite the fact that external sales are VAT free, GOG begins, during 2013, compulsory application of a more rigorous VAT exemption requirement, which makes acquisition of requisite documents difficult. | - It is requested that GOG reverts to the previous system of obtaining the requisite documents from exporters. | - VAT Implementation Order (enforced from 1 January 2012) |
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