Ask a tax advisor on the topic of Double taxation

Double taxation, main residence in Peru

January 13, 2011 | 30,00 EUR | answered by Oliver Burchardt

Dear Sir or Madam,

According to information provided by my tax advisor, I have been subject to limited tax liability since 2009. I have applied for this because I am in Peru for 10 months of the year. I maintain a residence in Germany (2 months of the year) especially because I do not want to lose my voluntary statutory health insurance and pension entitlements (I am 63 years old). My wife has no income. In 2009, my income came from a few consultancy fees (from projects in Germany) and savings. In Peru, my wife and I are joint lessees of a small hotel business operated by a GmbH. However, in 2009, I did not receive any income from this business (as it was in the investment phase). It is only in 2010 that I will start receiving rental income from this GmbH, which will be used to repay a loan taken out in Germany for the expansion of the property. It is also possible that the hotel GmbH will start making profits in 2011.

To cut a long story short, my tax advisor has requested (as per the request of the tax office in Germany) that I provide a profit and loss statement for the hotel business in 2009, including details of the local income tax paid, in order to calculate the net income from the business. Without this, I cannot receive a tax assessment for 2009. They want to calculate and withhold or demand the tax difference (minus any taxes already paid). My tax advisor believes I should do this, but I want to make sure I am not making a mistake. I do not want any disadvantages in 2009, but I am concerned about 2010 and 2011. As far as I know, there is no tax agreement with Peru.

It is also confusing to me that the tax office is requesting income information from a legal entity (the local GmbH). As a private individual, I did not have to file a tax return in 2009 due to lack of income. I have informed my tax advisor about this, and it has been confirmed by the local tax consultant.

I am anxious because I need the tax assessment for 2009 for my daughter's student financial aid (Bafög) and for my voluntary statutory health insurance. The tax return has been submitted to the tax office since mid-2010.

I would greatly appreciate your guidance on how to proceed in this case. I am also willing to provide any further clarifying information you may need.

Yours sincerely,

Oliver Burchardt

Dear questioner,

Thank you for your inquiry, which I am happy to answer as part of an initial consultation.

The tax assessment is based on the information provided. Changing, adding, or omitting information can affect the tax assessment.

In your case, it is not clear to me whether you are subject to unlimited or limited tax liability.

In the case of unlimited tax liability, your worldwide income is subject to taxation in Germany. This means that the income you earned from your share in the GmbH in Peru is relevant for German taxation. This explains the request from the tax office.

However, there are several questions to clarify:
1.) Is there unlimited or limited tax liability? Apparently, the tax office assumes unlimited tax liability. In my opinion, this is correct, as you have a residence in Germany and are considered resident in Germany according to § 8 AO. The fact that you spend the majority of your time in Peru is irrelevant for the question of unlimited tax liability in Germany. In this context, it is relevant what information your tax advisor has provided to the tax office as the basis for the decision on limited or unlimited tax liability and to what extent the tax office's information can be binding.
2.) Is the Peruvian company comparable in legal form to a German corporation? If this were the case, I see no need for submission, as only distributed profits would be subject to taxation, provided there is unlimited tax liability. If the Peruvian company is not comparable to a German corporation, but rather resembles a German partnership, the income would be attributed directly to you.

Your tax advisor should examine these questions in detail and explain to you exactly why they have reached their conclusions.

As you can see from the explanations, the case is complex and requires a thorough examination. You should urge your colleague to focus on this.

I hope my explanations have been helpful to you.

Best regards,
Oliver Burchardt
Tax advisor