International and supra-national law
The expression "International Tax Law" describes the totality of fiscal regulations of national law and the international agreements, which regularly regulate the taxation of cross-border facts on the basis of national approval laws. These mainly include the law governing the taxation of international transactions (Außensteuerrecht), the treaties to avoid double taxation (double taxation conventions) as well as other bi- or multilateral contracts, as far as these regulate taxation.
Law governing the taxation of international transactions (Außensteuerrecht)
The law governing the taxation of international transactions comprises the regulations of intra-state (national) tax law, which specifically deal with the cross-border facts. These include, in particular, those regulations of the income tax act, which serve to avoid double taxation when taxing foreign income of persons residing in Germany, as well as the regulations for taxing persons residing in foreign countries, who draw domestic income (limited tax liability). The corporation tax act contains comparable regulations, moreover it refers to the regulations of the income tax act.
The law governing the taxation of international transactions also comprises the German Law on External Tax Relations (Außensteuergesetz). It contains regulations for the so-called taxation on the income attribution principle (Hinzurechnungsbesteuerung). The profits achieved by the foreign company are added to the inland involved party as income.
Double taxation conventions
A major part of the International Tax Law is the double taxation conventions. Double taxation conventions are international contracts, with whose help the states avoid that the same incomes of the same taxpayer are burdened several times for the same periods through similar taxes. On the one hand this is done by the fact that the state from which the income originates (state of source) withdraws or restricts the taxation in favour of the state of residence of the drawer of the income and on the other hand by the fact that the place of residence state exempts income, which can be taxed in the state of source, from its taxation, or that it credits the foreign tax due on this income to its tax.
The double taxation conventions concluded by Germany in their basic structure follow the model tax convention developed by the Organization for Economic Cooperation and Development (OECD). The function of the double taxation conventions mainly consists of removing tax obstacles from the cross-border economic exchange, or to at least reduce it. That is why the Federal Republic of Germany has a very close knit convention network with its approximately 90 conventions. The conventions regularly cover the income and capital taxation. In addition there is a series of conventions to avoid double taxation in the sector of inheritance and gift taxes and other conventions which concern vehicle tax in international traffic.
Fiscal harmonisation within the European Union
Special significance is awarded the regulations to harmonise taxes within the European Union which are laid down in the contract about the European Union as "supranational law". With the harmonisation of the value-added tax, which has progressed quite far, a major contribution was made to harmonise the competitive conditions within the European Union.
The Directive on parents and subsidiaries, the Directive "mergers", the Directive "Interest and Royalties" and the so-called European Arbitration Convention remove fiscal obstacles with the direct taxes, which are in the way of cross-border entrepreneurial collaboration.
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