1. September 26, 2008CFH Cordes + Partner Tax-Update Germany European Tax Group Meeting September 26, 2008 in Dubrovnik CFH Cordes + Partner Wirtschaftsprüfer Steuerberater Rechtsanwalt Hamburg/Germanyhamburg@nexia.de

2. September 26, 2008CFH Cordes + Partner Overview (Highlights) Reform of Inheritance Tax Flat tax on capital income Trade tax – Real estate enterprises Corporate tax – minority holdings Deduction of losses § 2 a EStG-E Reduction of rate of withholding tax § 44a EStG-E Amendment to Foreign Trade Act

3. September 26, 2008CFH Cordes + Partner Reform of Inheritance Tax Enlargement of basis for inheritance tax by higher evaluation of enterprises and real estate based on market values Increase of tax exempt amounts Entry to force probably January 1, 2009

4. September 26, 2008CFH Cordes + Partner Flat tax on capital income According to current German income tax, capital gain on the sale of non-business assets - especially shares - is not subject to income tax, if selling > 1 year after buying New flat tax regime: capital gain on the - private - sale of financial instruments, especially shares in corporations, will be subject to a flat tax at a rate of 25% plus solidarity surcharge 5,5% (plus church tax) Flat tax also refers to capital yields as interests and dividends (no half-income-system in privat area) Entry to force fixed on January 1, 2009

5. September 26, 2008CFH Cordes + Partner Trade tax – Real estate enterprises Real estate enterprises in Germany are excepted from trade tax According to Tax Act 2009, this exception shall be reduced to profits related to real estate: No exception from trade tax for loans and services from partners to their partnership if treated as profit allocation for tax purposes

6. September 26, 2008CFH Cordes + Partner Corporate tax – minority holdings Dividends and capital gains to corporations: Exemption from corporate tax (95% tax-free) During negotiations for Tax Act 2009: Discussions to abolish this exemption for minority holdings of corporations (< 10%) No changes planned for trade tax: no trade tax if at least 15% in the shares at beginning of the year Final solution in Tax Act 2009?

7. September 26, 2008CFH Cordes + Partner Tax-deduction § 2a EStG Losses from foreign country permanent establishment only deductible if “active” (delivery of goods, services as business; not: farming, tourism, licenses, renting) – if “passive” losses: only offsettable with profits from same country and same kind of income After European Court of Justice “Marks & Spencers” and “REWE Zentralfinanz” adaption of § 2a EStG to European law in Tax Act 2009: No restriction of deduction for losses in EU-countries, if double tax treaty determines tax credit method in Germany

8. September 26, 2008CFH Cordes + Partner Reduction of rate of withholding tax Tax Act 2009: Rate of withholding tax for dividends of foreign corporations lowered to rate for domestic corporations Tax refund by “Bundeszentralamt für Steuern” Even lower rates possible according to double tax treaties __________________________________________ Tax Act 2009 in general: not entered into force yet

9. September 26, 2008CFH Cordes + Partner Amendment to Foreign Trade Act Amendment to Foreign Trade Act planned: Ministry of Economy may prohibit the purchase of at least 25% (directly or indirectly) in the shares of a company resident in Germany by a foreign company (except EU-companies and EFTA) if the transfer in the shares would endanger public safety Legal consequence: The share purchase contract does not become legally valid

10. September 26, 2008CFH Cordes + Partner Finally... Thank you for your attention... ralf.krueger@cfh-hamburg.desimone.schulze@cfh-hamburg.de