StartInternat. Tax LawControlled Foreign Corporation Rules

CFC Taxation

With the provisions in sections 7 ff AStG, the legislator has created various provisions to avoid a shift in income to low-tax countries (so-called “tax havens”) and, ultimately, fight tax avoidance by relocations abroad. Specifically, CFC taxation is designed to prevent profits from being moved to low-tax countries by creating a foreign corporation. As seen from the perspective of the legislator, CFC taxation is designed and intended to remove unjustified tax advantages.

On 25th June 2021, the Bundesrat approved the Law on the Anti-Tax Avoidance Directive (Law implementing ATAD), cf. German Federal Gazette I page 2035. The new law also comprises amendments for CFC taxation. Although, this is not a fundamental and systematic revision, these amendments partly have significant effects. 

According to section 21 sub-section 4 AStG (Foreign Transaction Tax Act), the new legal situation has to be applied for the first time with regard to income, corporation and trade tax for the assessment and survey period for which intermediate income has to be added which was generated in a financial year of the intermediate company or commercial unit beginning after 31st December 2021.

CFC taxation according to sections 7 ff AStG old version

CFC taxation according to sections 7 ff AStG new version

Specialist attorneys for tax law and international tax law specialists 

It is important, in particular, for companies and investors operating internationally to know the pitfalls of CFC taxation in order to avoid any unexpected taxation of the shareholders by the German fiscal office. Our team of specialist attorneys for tax law, international tax law advisers and tax experts provides competent and practical advice on all questions regarding the topic of CFC taxation.

LHP: Attorneys at Law, Tax Law Specialists, Tax Advisers PartmbB


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