Tax law: the board of a foreign corporation may be a permanent agent in Germany

The Federa Financial Court has ruled that the managing director of a company may be a permanent representative, with the result that the foreign company is subject to limited corporation tax, even if it does not maintain a permanent place of business in Germany.

The managing director of a Luxembourg joint-stock company regularly spent time in Germany in order to initiate, conclude and settle gold transactions for it. The tax office assumed the limited corporation tax liability of the joint-stock company because the managing director was the permanent representative of the company within the meaning of § 13 AO.

However, the FG Neustadt had assessed the matter differently and upheld the action against the corporation tax assessment notice.

The BFH overturned the judgement of the fiscal court.
According to § 13 AO, a permanent representative is a person who sustainably manages the business of a company and is subject to its instructions, according to the BFH. Since the regulation presupposes a representative and an enterprise in addition, it is disputed whether the managing director can fulfil these conditions as an organ of the corporation. According to German civil law, the company acts itself when its organs become active.
The BFH has now decided the dispute. According to the purpose of the law and its wording, in tax law such persons could in principle also be permanent representatives who are to be regarded as organs of the corporation in civil law. For the foreign limited company, which has neither its registered office nor its management in Germany, this results in the limited corporation tax liability pursuant to § 2 No. 1 KStG in conjunction with § 2 No. 1 KStG. § 49 (1) no. 2 letter a EStG, without the existence of a domestic permanent establishment still being important.
Previous instance

FG Neustadt, Urt. v. 15.06.2016 – 1 K 1685/14

09.05.2019