Germany: Co-ordination Centres

Pre-conditions for Qualification as a Co-ordination Centre

Co-ordination center status is not open to any entity engaged in any economic activity. A company must meet the following criteria:

• Administrative Consent: The company must obtain administrative consent prior to being granted the fiscal benefits that go with having a co-ordination center status.

• Permitted activities: German co-ordination centers are strictly limited in what activities they can engage in. They are limited to the provision of administrative services to a group of affiliated companies and any assets used by the co-ordination center must be in the name of the German company. A German co-ordination center cannot engage in the following activities:
  
  • Holding Company: It cannot hold shares in or grant loans to affiliated corporate entities from which in return it receives dividend income & loan interest in a tax-friendly environment.
    
  • Ownership of Patents & Other Assets: It cannot own patents & other assets to be rented out to other group members or corporations in return for rental income which it receives in a tax friendly environment. As with assets in general, any intellectual property assets owned by the co-ordination center must be for its own use and must be in its name.

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Comparison With Other Co-Ordination Centre Regimes

Co-ordination centers offering discriminatory fiscal incentives exist in Belgium, Spain and France. German corporate income tax rates payable by co-ordination centers located on its territory do not compare favorably with those levied in competing jurisdictions, except perhaps for Spain in certain circumstances.

As previously mentioned, co-ordination centres in EU member states have come under varying degrees of EC fire, and in March 2007, the European Commission announced that it was extending an investigation into Belgian coordination centres.

In its judgment of 22 June 2006, the European Court of Justice confirmed that the tax scheme for coordination centres was incompatible with the common market, but partly annulled the transitional measures laid down by the Commission for the phasing-out of the scheme.

This annulment leaves the procedure initiated by the Commission on 27 February 2002 partially open. The procedure must therefore be closed by a new decision laying down appropriate transitional measures for the centres concerned. The Commission is therefore extending the procedure before adopting a new decision in order to give interested parties the opportunity to submit their observations.

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