Permanent establishment in Germany: New case law on international permanent establishments

If a foreign company maintains a permanent establishment in Germany, tax obligations may arise. German regulations and double taxation agreements must be taken into account, as well as whether a “permanent establishment” exists. The Ecovis experts explain the latest rulings of the German Federal Fiscal Court (FFC).

A central requirement for the existence of a permanent establishment both under Section 12 of the German Fiscal Code (AO) and under Article 5 of the OECD Model Tax Convention is the “fixed establishment”. This is generally understood to mean premises that are under the legal control of the foreign company (e.g., through lease or ownership or even de facto transfer). The criterion of control is here very important under German law.

The criteria for a permanent establishment in Germany: The rulings of the Federal Fiscal Court

In a recent ruling (I R 47/21, 18 December 2024), the FFC considered permanently restricted usage structures to be an indication of a permanent establishment. The case in question involved a lockable roll container with business documents inside a shared office. This was sufficient to constitute a permanent establishment.

A permanent establishment also requires a certain duration. In another ruling (I R 39/21, 18 December 2024), the FFC addressed the question of how long permanent premises must exist in order to be considered a permanent establishment. Here, the FFC stipulated a minimum period of six months. However, actual business activities must also take place at the premises during this period. If, for example, a lease agreement was concluded for a period of more than six months, but the business activities were already terminated and wound up within six months, there is no permanent premises and therefore no permanent establishment. This view is based on the German understanding of a permanent establishment.

We will clarify with you whether your company has established a permanent establishment in Germany with all the associated tax consequences.

Marion Dechant, Accountant, ECOVIS Deutschland, Munich, Germany

What companies in Germany need to consider when setting up permanent establishments

To avoid unintentionally setting up a permanent establishment in Germany with additional tax obligations, particularly in relation to income or corporation tax, companies should be careful with usage structures restricted to specific persons. Even small lockable devices such as cabinets or similar items can constitute a permanent establishment, especially if they are used for business purposes. Also, while the minimum duration of business activities for a permanent establishment provides some planning security, this time requirement should be monitored in practice.

For further information please contact:

Marion Dechant, Steuerberaterin, Ecovis Deutschland, Munich, Germany
Email: marion.dechant@ecovis.com