The German Bundesministerium der Finanzen has published the German, Spanish and English texts of the Agreement between the Federal Republic of Germany and the Republic of Panama for the Avoidance of Double Taxation regarding the Operation of Ships or Aircraft in International Traffic with respect to Taxes on Income which was signed on November 21, 2016 (Hereafter the Agreement).

Although the Agreement has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.

 

Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.

 

Scope of the Agreement

Article 1 of the Agreement (“Scope”) arranges that the Agreement shall apply to enterprises which operate ships or aircraft in international traffic and are residents of one or both of the Contracting States.

 

Taxes covered

Article 2, Paragraph 1 of the Agreement (“Taxes Covered”) arranges that the Agreement shall apply to taxes on income imposed on behalf of a Contracting State, one of its Länder, or one of their political subdivisions or local authorities, irrespective of the manner in which they are levied.

 

Article 2, Paragraph 2 of the Agreement subsequently arranges that all taxes imposed on total income, or on elements of income, including taxes on gains from the alienation of movable or immovable property, as well as taxes on capital appreciation shall be regarded as taxes on income.

 

Article 2, Paragraph 3 of the Agreement subsequently arranges that the existing taxes to which this Agreement shall apply are in particular:

a)   in the Republic of Panama:

(i)   the income tax on individuals (Impuesto sobre la Renta de Personas Naturales); and

(ii)  the income tax on legal entities (Impuesto sobre la Renta de Personas Jurídicas);

b)   in the Federal Republic of Germany:

(i)   the income tax (Einkommensteuer);

(ii)  the corporate income tax (Körperschaftsteuer); and

(iii) the trade tax (Gewerbesteuer) including the supplements levied thereon.

 

Article 2, Paragraph 3 of the Agreement subsequently arranges that the Agreement shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of this Agreement in addition to, or in place of, the existing taxes.

 

International traffic

Article 3, Paragraph 1, sub h of the Agreemeent (“General Definitions”) defines the term "international traffic" as meaning any transport by a ship or aircraft operated by an enterprise that has its place of effective management in a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State.

 

Residency

Article 4 of the Agreement (“Resident”) arranges that for the purposes of this Agreement, the term "resident of a Contracting State" means any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

 

Profits from the operation of ships or aircraft

Article 5 of the DTA (“Shipping and Air Transport”) arranges the following:

(1)  Profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.

(2)  For the purposes of this Article, profits from the operation of ships or aircraft shall include income from:

a)   the ancillary rental of ships or aircraft on a bare-boat basis; and

b)   the use or rental of containers (including trailers and ancillary equipment used for transporting the containers), if such income is attributable to the profits from the operation of ships or aircraft.

(3)  The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

 

Capital gains

Article 6 of the Agreement (“Capital Gains”) arranges that gains from the alienation of ships or aircraft operated in international traffic by an enterprise of a Contracting State, or of movable property pertaining to the operation of such ships or aircraft, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.

 

Entry into force

With respect to the entry into force of the Agreement Article 8, Paragraph 2 of the Agreement arranges that after the entering into force of the Agreement the provisions of the Agreement shall have effect:

a)   in the case of taxes withheld at source, in respect of amounts paid on or after January 1, 2017;

b)   in the case of other taxes, in respect of taxes levied for periods beginning on or after January 1, 2017.

 

Click on the language of your choice to be forwarded to the text of the Agreement in that language as made available on the website of the German Bundesministerium de Finanzen (English, German or Spanish).

 

 

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