Germany Unveils Details Of DTA Negotiating Strategy
24 April 2013
Posted by: Author: Ulrika Lomas
Source: Ulrika Lomas
Germany has issued a new model tax treaty (Deutsche Verhandlungsgrundlage) as a basis for future tax treaty negotiations.
Germany's parliamentary State Secretary at the Finance Ministry Hartmut Koschyk has highlighted the fact that double taxation agreements (DTAs) now serve a dual purpose, namely ensuring the attractiveness of an export-orientated location, while at the same time preventing both double taxation and double non-taxation.
Koschyk explained that interest in Germany in the Government's DTA policy has increased recently, predominantly as a result of the rise in importance of cross-border economic activities for Germany as an export-orientated nation. DTAs have a steering effect on international investment flows and influence the competitiveness of investment locations, Koschyk pointed out, noting that such treaties also govern the effective taxation of individual taxpayers, including border workers and pensioners.
When negotiating double taxation accords, it is vital therefore to take into consideration not only conflicting economic and political interests, but also fiscal principles and practical procedural issues, ranging from the precise withholding tax rates to be applied, to the data protection clause to be introduced.
DTAs are no longer merely instruments aimed at avoiding double taxation but are intended to prevent tax avoidance, Koschyk insisted, alluding to the dramatic rise in the importance of the tax information exchange provision to be included in the DTA text. There is no longer a modest level of regulation, but instead an OECD internationally recognized and accepted standard, Koschyk stressed.
Given the emergence of the latest challenge, namely the problem of increasingly aggressive tax planning by multinationals and tax base erosion and profit shifting, it is vital that DTAs prevent double non-taxation or so-called "white income," Koschyk said. Double taxation and double non-taxation are equally damaging, as they both result in distortions of competition and errors in taxation.
Reflecting the changing objectives and role of the DTA, Germany’s agreement policy is characterized by both continuity and change, Koschyk said. For decades Germany has applied the same exemption provisions and calculation methods, according to income type. Now, the Government must take into consideration ongoing international developments when drafting accompanying clauses, to ensure that exemption clauses are not abused, he added. Germany's basis for DTA negotiation is not therefore founded on a German model agreement, set in stone, but is a flexible support instrument to assist the Government in its negotiations.
Up until now, Germany has concluded DTAs relating to taxes on income and on wealth with over 90 jurisdictions.