045. Permissible Passive Income Under International Tax Act

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The German International Taxation Act (Aussensteuergesetz) is intended to prevent use of foreign entities to avoid German taxes. One of its core provisions provides that the income earned by an "interposed foreign corporation" (Zwischengesellschaft) will under certain circumstances be attributed to its German shareholders.

Whether a foreign entity is an "interposed foreign corporation" within the meaning of the law depends among other things on the character of the income it earns. The law contains a list of active income categories and provides that a foreign corporation is "interposed" with respect to all other types of income.