ATO Interpretative Decision

ATO ID 2009/23

Income Tax

• This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
  Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.

Issue

Is German Trade Tax a 'federal foreign tax' for the purposes of paragraph (a) of the definition of 'tax law' in section 317 of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. German Trade Tax is a 'federal foreign tax' for the purposes of paragraph (a) of the definition of 'tax law' in section 317 of the ITAA 1936.

Facts

The German Trade Tax (GTT) is imposed by a federal statute of the Federal Republic of Germany (Germany) called the Gewerbesteuergesetz (GewStG).

The GewStG applies to businesses carried on in Germany and is not restricted to any particular German State or municipality.

The tax base of the GTT is similar to the federal corporate and personal income tax of Germany, and applies to the entity's world-wide income with additions and deductions imposed by the GewStG.

The GewStG sets the minimum tax rate of the GTT.

All taxpayers engaged in business must lodge a trade tax return with Germany's federal tax office, which calculates a trade tax assessment base and issues an assessment notice to the taxpayer.

Any exemption from the GTT applies to all eligible taxpayers in Germany irrespective of location.

The GewStG is included in all of Germany's double tax agreements.

Reasons for Decision

Paragraph (a) of the section 317 of the ITAA 1936 definition of 'tax law' in relation to a listed country or an unlisted country provides that:

(a)

if the listed country or the unlisted country has federal foreign tax and either or both of the following:

(i)

State foreign tax;

(ii)

municipal foreign tax;

The term 'foreign tax' as used in section 317 of the ITAA 1936 takes its meaning from subsection 6AB(2) of the ITAA 1936. Subsection 6AB(2) of the ITAA 1936 provides that:

A reference in this Act to foreign tax is a reference to tax imposed by a law of a foreign country, being:

(a)

tax upon income; or

(b)

tax upon profits or gains, whether or an income or capital nature; or

(c)

any other tax, being a tax that is subject to an agreement having the force of law under the International Tax Agreements Act 1953;

The GTT is imposed by the GewStG, which is a law of Germany's Federal Parliament. As per section 320 of the ITAA 1936, Part 1 of Schedule 10 to the Income Tax Regulations 1936 provides that Germany is a 'listed country'. As such, the GTT is a tax imposed by a law of a listed country. The GTT is also subject to an agreement having the force of law under the International Tax Agreements Act 1953 (Agreements Act). Article 2(b) of the German double tax agreement (DTA) within Schedule 9 to the Agreements Act provides that the German DTA applies to trade tax in Germany. Accordingly, the GTT is a 'foreign tax'.

However, it is necessary to consider whether the GTT is a 'federal foreign tax' for the purposes of section 317 of the ITAA 1936.

The Commissioner considers the following features of the GTT system are relevant when considering if it is a federal foreign tax:

•

the tax is imposed by a federal statute of Germany

•

the GewStG applies to businesses carried on in Germany, regardless of location

•

the base for calculating GTT is derived from the federal corporate and personal income tax system of Germany, with additions and deductions imposed by the GewStG

•

the GewStG sets the minimum tax rate of the GTT

•

a trade tax return must be lodged with Germany's federal tax office

•

any exemption from the GTT applies to all eligible taxpayers in Germany irrespective of location, and

•

the German federal government includes the GTT as part of its negotiations of all of its double tax agreements.

As the GTT is a tax based on a law that relates to Germany as a whole, the GTT is a federal foreign tax and not a 'municipal foreign tax' or a 'State foreign tax' under paragraph (a) of the section 317 of the ITAA 1936 definition of tax law.

Accordingly, the GewStG is a 'tax law' for the purposes of section 317 of the ITAA 1936.

Year of income:  Year ending 30 June 2009

Legislative References:
Income Tax Assessment Act 1936
   Subsection 6AB(2)
   Section 317

Related Public Rulings (including Determinations)
Tax Determination TD 2004/31

Other References:
Voelker D and Bodewaldt B, 'Trade Tax' in Voelker D, Bott K & Wolff F, eds, German Tax and Business Law (London: Sweet & Maxwell, 2005), 6001 - 6012.
Schmitz M and Wagnet G, 'Germany' in CCH Australia Limited, International Master Tax Guide 2008/09 (Sydney: CCH Australia, 5th ed, 2008), 569 - 644.
Amann R, ed, German Tax Guide (The Hague: Kluwer Law International, 2001).

Keywords
Foreign tax laws
German

Siebel/TDMS Reference Number:  6134338

Business Line:  Public Groups and International

Date of publication:  24 April 2009

ISSN: 1445-2782