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Nexia International Tax ConferenceIstanbul - 2011Istanbul - 2011

Heinrich Watermeyer, DHPG Dr. Harzem & Partner KG, Bonn

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Dual resident companies

• Companies which are resident in two different countries

• Depending on statutory seat place of effective management

• Result of using the corporate law for setting up a company in a specific country

(speed up of process to set up a company, equity requirement etc.)

• Recognition (in Germany) of foreign EU-companies due to place of effective management

• The same applies in the context of special bilateral agreements with non EU-countries, such as the US (Freundschaftsabkommen)

• Tax planning?

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EU-Court

• “Centros”, EU Court 9.3.1999, C 212/97

• “Überseering”, EU Court 5.11.2002, C 208/00

• “Inspire Art”, EU Court 30.9.2003, C 167/01

A corporate entity which was validly set up according to the laws of the respective state has to be recognized in the EU if it changes its place effective management during the EU.

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Tax Issues

• Unlimited income tax liability according to national tax laws

– effective place of management

and/or

– statutory seat decisive?

• Recognition as corporate entity or a permanent establishment in the respective country?

• Applicability of double tax treaty?

– residency

– permanent establishment taxation

• Cross border group taxation (consolidation)?

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Unlimited or limited tax liability

• A dual resident company may be unlimited tax liable in both countries

• Double tax treaty: Tie breaker rule?

• or: not recognised as a corporate entity in the one or other country

- Permanent establishment?

- partnership?

your country: effective place of management

outside: statutory seat and operational business Corporate entity

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Difference in tax treatment for tax consolidation?

subsidiary I subsidiary II

parent corporation

statutory seat and place of effective management

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Difference in tax treatment for tax consolidation?

subsidiary I subsidiary II

parent corporation

outside your country: statutory seat

in your country: place of effective management

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Difference in tax treatment for tax consolidation?

outside your country: statutory seat and place of effective management except pe-management

in your country

subsidiary I

parent corporation

subsidiary II

Pe effective place of business for

subsidiary

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Non-discrimination rules according to tax treaties

The decision of the German Federal Tax Court according to the tax treaty Germany-UK

C-plc claimed for a fiscal unity with E-GmbH for trade tax purposes, a profit and less pooling arrangement was not necessary at that time.

trade tax unity ?

C-plcGB

KL.-GmbH

E-GmbH Inland