News in double taxation treaties

The Ministry of Finance of the Czech Republic has published an amendment to the double taxation treaty between the Czech Republic and Germany in the Financial Bulletin. Based on this change, the minimum standard resulting from the Multilateral Convention on the Implementation of Measures to Combat Base Erosion and Profit Shifting in Relation to Tax Treaties (“MLI”) will be applied to the treaty. In the case of withholding tax, this adjustment will apply to events occurring from 1 January 2026, and for other taxes to the period starting on or after 1 January 2026.

News from the European Union

The European Union has unveiled a new optional EU legal framework, known as the “28th legal regime“, which the European Commission is expected to present at the turn of 2025 and 2026. This regime should allow innovative start-ups and scale-ups to operate across the EU under a single set of rules, without having to deal with and comply with different laws across Member States. The aim is to simplify the rules in force and reduce the costs associated with failed projects. The rules should include elements of corporate, insolvency, labour and tax law. The use of this new legal regime would be optional. Work on this initiative is still at the beginning, the specific tax elements that the initiative should cover are not yet clear, and the implementation will require agreement at the level of all EU Member States.

Other news and court decisions

Poland prepares changes in taxation of financial institutions and digital services

The Polish Ministry of Finance plans  to increase the corporate tax rate for banks and adjust the sectoral tax paid by financial institutions. The income tax rate for banks would rise from the current 19% to a target of 23% from 2028. However, in a transitional period, the rate would be gradually increased above the target level. It would be 30% in 2026 and 26% in 2027. At the same time, it is proposed to gradually reduce the sectoral tax rate by 10% in 2027 and to reduce it further by 20% from 2028 compared to the current rate (the current tax rate is 0.0366% and applies to the total value of assets exceeding PLN 4 billion for banks and PLN 2 billion for insurance and reinsurance companies).

Poland has also started a discussion on  the introduction of a digital services tax, which should target multinational corporations operating in this sector with global revenues exceeding €750 million. This tax would apply to revenues from digital platforms, targeted advertising and activities related to the use of data. The Polish Ministry of Digitization is considering two options:

• In the broad variant, taxation at a rate of 3%, 4.5% or 6% would apply to targeted advertising, the transfer of user data for marketing purposes and the provision of digital interfaces (e.g. social networks or marketplaces). Supplies of digital content, payment or communication services, regulated financial services and direct sales of goods or services would be exempt from taxation.
• In the narrow variant, only targeted digital advertising would be subject to a tax rate of 5%, 6% or 7.5%.

This is the second attempt to introduce a digital services tax in Poland (the first proposal in 2021 failed already at the public comment stage).

British Virgin Islands strengthens international tax cooperation

The British Virgin Islands has approved an amendment to the Mutual Legal Assistance in Tax Matters Act, which strengthens their international tax cooperation. The amendment introduces a clearer definition for financial institutions obliged to report and expands the punishable offences.

A German court has questioned the legality of double assessment of real estate transfer tax for transfers of shares in commercial companies

In its preliminary ruling, the German Federal Court expressed doubts about the legality of the double imposition of real estate transfer tax, which is technically allowed by the legislation in the case of the transfer of a share in a company of which real estate is a part, if the contract on the transfer of shares and the conclusion of the transaction do not take place on the same day. Both of these moments can lead to the imposition of real estate transfer tax if the notification is not properly filed with the relevant tax authority.

In the case under review, the share transfer agreement was signed on 11 March 2024 and the transaction was concluded on 29 March 2024. The notary informed the tax office about the signing of the share transfer agreement, but the relevant notification regarding the real estate transfer tax was not filed. The tax office thus assessed the tax at both moments, against which the taxpayer filed an appeal.

The German Federal Court preliminarily took the view that the prioritisation of the moment of conclusion of the transaction over the signing of the contract should apply for the purposes of assessing the transfer tax irrespective of whether the two events occurred on the same day or whether a certain period of time elapsed between the signing of the contract and the transfer. In its decision, the court also took into account the fact that the tax office was informed of the transaction and was aware of the facts (regardless of the absence of a specific reporting obligation) and preliminarily questioned the legitimacy of the “double” imposition of real estate transfer tax.

The Luxembourg Financial Administration has issued a guidance on the approach to hybrid mismatches in relation to investment funds

In the guidance, the Luxembourg tax administration  specifies the scope of the provisions of the Luxembourg Income Tax Law, which address the issue of reverse hybrid mismatches (i.e. hybrid legal entities). The aim of the guidance is to determine which investment entities may be exempted from the scope of these rules. Funds may be exempted if they qualify as a collective investment entity while meeting the following criteria:

• Broad participation criterion: The fund must distribute its shares or units to unrelated investors. Investors are considered to be related parties if they own or control at least 50% of the rights or if they belong to the same family circle or controlling group. The criterion is fulfilled if no individual investor directly or indirectly owns or controls more than 25% of the capital or voting rights.
• Diversification criterion: This criterion is not met if more than 30% of the fund’s assets are invested in securities issued by a single issuer.
• Investor Protection Criterion: This criterion is considered to be met if the fund is licensed and supervised by the Luxembourg Commission for the Supervision of the Financial Sector and is managed by a manager authorized in accordance with the European Directive 2011/61/EU on Alternative Investment Fund Managers.