Based on the “authorized OECD approach" introduced into the OECD Model Tax Convention and the Commentary in 2010, the attribution of assets and the allocation of income shall be based on the functions performed by the different parts of the enterprise. Germany has incorporated this concept into Para 1 (4 to 6) of the Foreign Tax Act (dAStG), which became effective as per January 1st, 2013, thereby considering “significant people functions" to be the decisive factor for the allocation of assets between headquarters and the permanent establishment. In case of a wind farm run by a German partnership with no employees of its own working in Germany whose shareholder was a Danish partnership, the German tax authority required the Danish enterprise to pay tax on reserves hidden in the German windmills. Due to the relevance of significant people functions for the allocation of assets as of January 1st, 2013, for income tax purposes, the tax authority attributed the windmill to the Danish place of management. However, both the German Tax Court and the German Federal Fiscal Court expressed doubts whether this change in law may result in a step-up for tax purposes as required under the German income tax law in case of a cross-border asset transfer. Stefan Bendlinger analyzes the conclusions drawn by the courts, considering possible impacts from an Austrian point of view as well.
