A for\u00adeign com\u00adpa\u00adny may beco\u00adme lia\u00adble for tax in Ger\u00adma\u00adny even if its regis\u00adtered office and manage\u00adment remain abroad. The decisi\u00adve con\u00adnec\u00adting fac\u00adtor is the per\u00adma\u00adnent estab\u00adlish\u00adment. Howe\u00adver, not every busi\u00adness acti\u00advi\u00adty in Ger\u00adma\u00adny auto\u00adma\u00adti\u00adcal\u00adly con\u00adsti\u00adtu\u00adtes such a per\u00adma\u00adnent establishment.<\/p>\n
Ger\u00adman tax law defi\u00adnes a per\u00adma\u00adnent estab\u00adlish\u00adment in Sec\u00adtion 12 of the Ger\u00adman Fis\u00adcal Code (AO) as a fixed place of busi\u00adness or faci\u00adli\u00adty used by the enter\u00adpri\u00adse for the pur\u00adpo\u00adses of its busi\u00adness. Typi\u00adcal examp\u00adles include bran\u00adches, offices, warehou\u00adses and work\u00adshops. Con\u00ads\u00adtruc\u00adtion and instal\u00adla\u00adti\u00adon pro\u00adjects may also be regard\u00aded as per\u00adma\u00adnent estab\u00adlish\u00adments under cer\u00adtain conditions.<\/p>\n
Howe\u00adver, it is not the for\u00admal desi\u00adgna\u00adti\u00adon of a faci\u00adli\u00adty that is decisi\u00adve, but its actu\u00adal use. Accor\u00adding to estab\u00adlished case law, the Fede\u00adral Fis\u00adcal Court (BFH) requi\u00adres a per\u00adma\u00adnent con\u00adnec\u00adtion to a spe\u00adci\u00adfic loca\u00adti\u00adon, a cer\u00adtain dura\u00adti\u00adon, busi\u00adness use and a power of dis\u00adpo\u00adsal over the pre\u00admi\u00adses that is not mere\u00adly tem\u00adpo\u00adra\u00adry (BFH, jud\u00adge\u00adment of 7 June 2023, Ref. I R 47\/20).<\/p>\n
The right of dis\u00adpo\u00adsal need not be based on owner\u00adship or a lea\u00adse held in the company\u2019s own name. Pre\u00admi\u00adses belon\u00adging to a con\u00adtrac\u00adted ser\u00advice pro\u00advi\u00adder may also suf\u00adfice if the for\u00adeign com\u00adpa\u00adny actual\u00adly and per\u00adma\u00adnent\u00adly uses them for its own pur\u00adpo\u00adses (Fede\u00adral Fis\u00adcal Court, jud\u00adge\u00adment of 23 March 2022, ref. III R 35\/20). Mere\u00adly an occa\u00adsio\u00adnal pre\u00adsence on third-par\u00adty pre\u00admi\u00adses, howe\u00adver, is not sufficient.<\/p>\n
Even if a per\u00adma\u00adnent estab\u00adlish\u00adment exists under Ger\u00adman law, that should not be the end of the ana\u00adly\u00adsis. If the\u00adre is a dou\u00adble taxa\u00adti\u00adon agree\u00adment (DTA) bet\u00adween Ger\u00adma\u00adny and the coun\u00adtry in which the com\u00adpa\u00adny is based, this must then be exami\u00adned. DTAs con\u00adtain their own defi\u00adni\u00adti\u00adons of \u2018per\u00adma\u00adnent estab\u00adlish\u00adment\u2019, which may dif\u00adfer from the Ger\u00adman defi\u00adni\u00adti\u00adon. Only the spe\u00adci\u00adfic agree\u00adment deter\u00admi\u00adnes whe\u00adther, and to what ext\u00adent, Ger\u00adma\u00adny is entit\u00adled to tax the company\u2019s profits.<\/p>\n
This is par\u00adti\u00adcu\u00adlar\u00adly rele\u00advant in the case of con\u00ads\u00adtruc\u00adtion and instal\u00adla\u00adti\u00adon pro\u00adjects: Ger\u00adman law sti\u00adpu\u00adla\u00adtes a mini\u00admum dura\u00adti\u00adon of six months, though some dou\u00adble taxa\u00adti\u00adon agree\u00adments devia\u00adte from this. It is the\u00adr\u00ade\u00adfo\u00adre not per\u00admis\u00adsi\u00adble to app\u00adly the Ger\u00adman time limits across the board to the pro\u00advi\u00adsi\u00adons of the agreement.<\/p>\n
A Hun\u00adga\u00adri\u00adan com\u00adpa\u00adny (com\u00adpa\u00adra\u00adble to a Ger\u00adman GmbH) has its regis\u00adtered office in Hun\u00adga\u00adry but per\u00adma\u00adnent\u00adly employs staff in a ren\u00adted office in Ger\u00adma\u00adny. The\u00adse employees look after cli\u00adents and pro\u00advi\u00adde tech\u00adni\u00adcal ser\u00advices. The com\u00adpa\u00adny has per\u00adma\u00adnent use of the pre\u00admi\u00adses under the terms of its con\u00adtrac\u00adtu\u00adal agreement.<\/p>\n
In this case, under Sec\u00adtion 12 of the Ger\u00adman Fis\u00adcal Code (AO), the\u00adre are strong indi\u00adca\u00adti\u00adons that a Ger\u00adman per\u00adma\u00adnent estab\u00adlish\u00adment exists. The next step is to exami\u00adne the dou\u00adble taxa\u00adti\u00adon agree\u00adment bet\u00adween Ger\u00adma\u00adny and Hun\u00adga\u00adry befo\u00adre any spe\u00adci\u00adfic tax lia\u00adbi\u00adli\u00adties arise.<\/p>\n
Whe\u00adre a per\u00adma\u00adnent estab\u00adlish\u00adment is estab\u00adlished, cer\u00adtain report\u00ading obli\u00adga\u00adti\u00adons must be obser\u00adved. Under Sec\u00adtion 138 of the Ger\u00adman Fis\u00adcal Code (AO), the ope\u00adning of a per\u00adma\u00adnent estab\u00adlish\u00adment must be noti\u00adfied to the rele\u00advant local aut\u00adho\u00adri\u00adty, which will then inform the tax office. In addi\u00adti\u00adon, tax regis\u00adtra\u00adti\u00adon with the tax office must be initia\u00adted. Fur\u00adther\u00admo\u00adre, a busi\u00adness regis\u00adtra\u00adti\u00adon under Sec\u00adtion 14 of the Trade Regu\u00adla\u00adti\u00adon Act (GewO) may be required.<\/p>\n
The per\u00adma\u00adnent estab\u00adlish\u00adment for inco\u00adme tax pur\u00adpo\u00adses and the tre\u00adat\u00adment for VAT pur\u00adpo\u00adses are not iden\u00adti\u00adcal. Of par\u00adti\u00adcu\u00adlar importance is Sec\u00adtion 13b of the Value Added Tax Act (UStG), which con\u00adta\u00adins spe\u00adcial pro\u00advi\u00adsi\u00adons for for\u00adeign busi\u00adnesses. The exis\u00adtence of a per\u00adma\u00adnent estab\u00adlish\u00adment in Ger\u00adma\u00adny does not auto\u00adma\u00adti\u00adcal\u00adly mean that a per\u00adson is dee\u00admed to be resi\u00addent in Ger\u00adma\u00adny for VAT pur\u00adpo\u00adses in respect of every tran\u00adsac\u00adtion. The VAT impli\u00adca\u00adti\u00adons should the\u00adr\u00ade\u00adfo\u00adre be ana\u00adly\u00adsed separately.<\/p>\n
Any for\u00adeign com\u00adpa\u00adny ope\u00adra\u00adting in Ger\u00adma\u00adny, or wis\u00adhing to do so, should seek cla\u00adri\u00adfi\u00adca\u00adti\u00adon on the issue of per\u00adma\u00adnent estab\u00adlish\u00adments from an ear\u00adly stage from a tax law per\u00adspec\u00adti\u00adve. The con\u00adse\u00adquen\u00adces of an incor\u00adrect assess\u00adment ran\u00adge from having to pay back taxes to brea\u00adches of regis\u00adtra\u00adti\u00adon obligations.<\/p>\n