German tax authorities publish draft ordinance on income allocation for permanent establishments

Tax Controversy & Dispute Resolution ()

As a consequence of the introduction of the “Authorized OECD Approach” (AOA) into Section 1 subsection 5 of the German Foreign Tax Act (FTA) on 6 June 2013 with effect from 1 January 2013, the German tax authorities have now published their draft of an Ordinance on income for permanent establishments (PE).

This follows the typical three-fold approach in German tax law which is regularly structured as follows: (i) introduction of statutory provision, and further explanations in form of (ii) an ordinance and (iii) administrative principles. An ordinance is equal to a statutory provision and is directly applicable to taxpayers, whereas administrative principles are addressed to the German tax authorities as guidelines in particular for tax inspectors which provide only an indication of the actual tax authority approach (indirect application to the taxpayer). Comments on the draft Ordinance can be provided (e.g. by industry organizations and tax advisors) until 11 October 2013. Thus, the final version will most likely not be published before the end of 2013.