International Taxation

MGM – IGC Bremen

Master in International Tourism

Management

German and International Tax Structures –

SS 2020

Prof. Dr. Vera de Hesselle

vera.dehesselle@hs-bremen.de
 Taxation in general

Taxes on Earnings: Transaction Taxes: Excise Taxes:

Einkommensteuer  Umsatzsteuer  Tabaksteuer 

(income  tax) (value added tax) (tabacco tax)
Stromsteuer 
Körperschaftsteuer  Grunderwerbsteuer 
(electricity tax)
(corporate income tax) (property transfer tax)
Branntweinsteuer 
Solidaritätszuschlag  (alcohol tax)
(solidarity surcharge) Hundesteuer 
(dog licence fee)

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Direct an indirect taxes

 The term direct tax means a tax paid directly by

the persons on whom it is imposed (income tax,
property taxes).

 An indirect tax can be passed on to another

person or group. A business may recover the cost
of the taxes it pays by charging higher prices to
customers (e.g. VAT, alcohol tax, tobacco tax).

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BASIC PRINCIPLES OF
INTERNATIONAL TAXATION
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Fundamental principles of
taxation (see OECD Addressing the Tax Challenges (2014), chapter 2)

 Neutrality: Taxation should seek to be neutral and

equitable between forms of business activities.
 Efficiency: Compliance costs to business and
administration costs for governments should be
minimised as far as possible.
 Certainty and simplicity: Tax rules should be
clear and simple to understand, so that taxpayers
know where they stand.

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Fundamental principles of
taxation (see OECD Addressing the Tax Challenges (2014), chapter 2)

 Effectiveness and fairness: Taxation should

produce the right amount of tax at the right time,
while avoiding both double taxation and
unintentional non-taxation. In addition, the potential
for evasion and avoidance should be minimised.
 Flexibility: Taxation systems should be flexible and
dynamic enough to ensure they keep pace with
technological and commercial developments.

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Fundamental principles of
taxation (see OECD Addressing the Tax Challenges (2014), chapter 2)

 Taxes on income and comsumption: While income

taxes are levied on net income (i.e. from labour and
capital) over an annual tax period, consumption
taxes operate as a levy on expenditure relating to
the consumption of goods and services, imposed at
the time of the transaction.
 Corporate income tax
 The taxation of cross-border income under
domestic corporate income tax law
 VAT as indirect tax (goods and services)
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 Basic principles
of International Taxation
 Two fundamental principles
 The right of the country of residence of the taxpayer
to tax worldwide income, regardless of where the
income is earned (Residence Jurisdiction)
 The right of a country to tax income earned within
its boundaries (Source Jurisdiction)
 Cross-border investment
 Most income is taxable in the country of residence,
as well as in the country where the income is
earned (source taxation/residence taxation) =
double taxation!!! (but: DTT)
Basic principles of International Taxation

Every country has fiscal sovereignty, this means the

right to levy taxes, including
1. The taxation of resident individuals / corporations
on income generated both in their country of
residence and in foreign countries [residence
taxation – worldwide taxation]
2. The taxation of nonresident individuals /
corporations on income generated domestically
[source taxation].
Principle of worldwide income

Worldwide income is income

worldwide  earned anywhere in the world
income and is used to determine
taxable income

Deductions depending on the type 
of income
Basic principles of International
Taxation – residence taxation

Example:
P - Income:
• Germany 100.000
(residence state)
• France 50.000 (source).

Germany is taxing

150.000 (worldwide taxation)

100.000

50.000

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Basic principles of International
Taxation – source taxation

Example:
P - Income:

• France 50.000 (residence

state)
• Germany 100.000 (source
state)

Germany is taxing
100.000 (source taxation)
100.000

50.000

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 Permanent Establishment (PE)

 A fixed place of business (article 5 (1) OECD MA);

 A construction or project PE, which is a special
subset of the fixed place of business PE, with different
requirements (article 5(3) OECD MA)
 An agency PE, through the actions of a dependent
agent (article 5 (5-6) OECD MA).
 Problem: virtual service – digital economy PE?

 Liability: Income Tax and Value added Tax

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Example 1:
Cross-border investment

Individual A is a resident of Germany (domicile) with a

factory (PE/permanent establishment) in the USA.
Factory profit in 2017: 3 mio €.

Germany Tax liability of

USA individual A?

Profit: 3 mio. EUR

Example 2:
Cross-border investment
US- corporation B derives interest income from a
German bank account (fixed deposits) in the amount
of 500.000 €.
Bank

Germany Tax liability of

USA
company B?
Interest
income
Company B
References
 PwC, The Impact of Taxes on the Competitiveness of
European Tourism, 2017,
https://publications.europa.eu/en/publication-detail/-
/publication/920639c3-ce70-11e7-a5d5-01aa75ed71a1
(14.03.2017)
 European Union, Taxation: https://europa.eu/european-
union/topics/taxation_en
 Joumard, Isabelle, Tax systems in European Union Countries
(2003), OECD Economic studies, http://www.oecd-
ilibrary.org/economics/oecd-economic-studies_16097491
 OECD 2014, Addressing the Tax Challenges of the Digital
Economy, chapter 2, http://www.oecd-
ilibrary.org/taxation/addressing-the-tax-challenges-of-the-
digital-economy/fundamental-principles-of-
taxation_9789264218789-5-en 16