How can I as a business owner avoid double taxation of permanent establishments abroad?
June 7, 2023 | 120,00 EUR | answered by Albrecht Schneider
Dear Tax Advisor,
I am Tatiana Zimmermann, owner of a medium-sized company that operates branches both in Germany and abroad. Lately, I have noticed that the double taxation of foreign branches is posing a significant burden on my company.
Currently, my foreign branches are being taxed both there and in Germany. This means that I am already paying taxes on my income in the foreign branches and then also have to pay taxes on this income in Germany. This results in double taxation, which has a negative impact on my financial situation.
My concern is that this double taxation could lead to financial losses in the long run, and I do not have an effective solution for it. Therefore, I am wondering how as a business owner I can avoid double taxation of foreign branches. Are there any legal options or tax measures that I can take to reduce or completely avoid this burden?
I would greatly appreciate it if you could assist me in my situation and provide me with possible solutions. Thank you in advance for your support.
Best regards,
Tatiana Zimmermann
Dear Mrs. Zimmermann,
Thank you for your inquiry regarding the double taxation of foreign branches. I understand that this situation poses a significant burden on your company and that you are looking for solutions to reduce or avoid this burden.
Firstly, it is important to understand that double taxation of foreign branches is a common problem because different countries have different tax laws and systems. Fortunately, there are legal options and tax measures that you can take to minimize double taxation.
One way to avoid double taxation is by utilizing Double Taxation Agreements (DTAs) between the countries involved. These agreements are designed to ensure that income is only taxed in one country in order to avoid double taxation. It is important for you to check whether there is a DTA between Germany and the country where your branches are located and if you can benefit from it.
Another option is to apply transfer pricing for transactions between the various branches of your company. By setting appropriate transfer prices, you can ensure that the profits of your branches are fairly allocated and thus avoid double taxation.
Furthermore, utilizing tax incentives and subsidies offered by the respective countries may be a way to reduce the tax burden. Inform yourself about possible tax reliefs and subsidies that may be available to you.
It is advisable to consult with an experienced tax advisor or tax expert specializing in international tax matters. Together, you can develop an individual solution for your company and implement measures to reduce double taxation.
I hope this information is helpful to you and that you can find a way to minimize the double taxation of foreign branches. Please feel free to contact me for any further questions.
Best regards,
Albrecht Schneider
