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ARTICLE · 06 FEBRUARY 2004

German Tax Package 2004: A Summary

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Effective January 1, 2004, the German Tax Legislation has been amended.

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By Joachim Borggäfe, Dr. Thomas A. Jesch, Andreas Köster-Böckenförde, Dr. Andreas Striegel, Martin Weger and Dr. Matthias Kestler

Effective January 1, 2004, the German Tax Legislation has been amended. For foreign investors, the tightened thin capitalization rules are certainly the most important changes. First, the debt : equity ratio for qualified holding companies is reduced to a ratio of 1.5 : 1. Also, the "thin cap" rules apply to partnerships held by corporations. In the future, interest will no longer be deductible in full if the interest expense relates to an intercompany loan received in connection with a share purchase from a related party.

Other measures include restrictions on loss utilization, dividend taxation being brought into line with the Bosal decision of the European Court of Justice, and capital gains being taxed the same way as dividends.

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