German Tax & Legal News - October 2004

Extract

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German Tax & Legal News - October 2004

Official Pronouncements

Finance ministry releases final decree on the allocation of capital to branch banks

The ministry of finance has released the final version of its new decree referred to as "Administrative Principles for the Attribution of Capital to Branches of International Banks". The Administrative Principles are designed to implement Part II of the OECD Discussion Draft on the Attribution of Profits to Permanent Establishments ("PEs") of Banks issued in March 2003 and replace the relevant section in the Administrative Principles for the Determination of Profits to be Allocated to a PE published in 1999. Whilst decrees of this nature bind the tax authorities rather than the taxpayer, they give a considerable degree of certainty, at least on matters of calculation. The new Administrative Principles apply to both German branches of foreign banks and foreign branches of German banks and contain the following provisions:

As a first step it has to be determined which of the bank's risk-weighted assets and market risk positions have to be allocated to the branch based on the functions actually performed by the branch (Allocation of Assets & Positions).

As a second step the risk-weighted assets and market risk positions allocated to the branch have to be valued under the German regulatory rules or equivalent rules as applicable in the country of the head office (Valuation of Assets & Positions). Positions hedged intrabank and intrabank current accounts are to be eliminated.

As a third step, the decree sug...

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