German Tax & Corporate Insights - Flick Gocke Schaumburg

Flick Gocke Schaumburg German Tax & Corporate Insights — Issue #08 / December 2015

German Tax & Corporate Insights Updates on recent business trends, legislation and case law in Germany

Contents

Editorial

International Tax Proposed abandonment of the tax exemption regime for portfolio investments — need for action?. . . . . . . . . . . . . . . . . . . CFC income not subject to trade tax in Germany. . . . . . . . . . BEPS & information exchange: Tax court affirms principle of confidentiality and secrecy in tax matters . . . . Accounting for tax uncertainties under IAS 12 — new developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dear readers, 2 3 4 5

Real Estate Transfer Tax German real estate transfer tax provisions — substitute tax base unconstitutional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Investment Taxation Reform of the German Investment Tax Act . . . . . . . . . . . . . . . . 8

Bonn Johanna-Kinkel-Straße 2-4 53175 Bonn Phone +49 228/95 94-0 [email protected]

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Representative offices:

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Corporate Law Breaking old habits in German corporate finance: New rules on convertible bonds and preference shares and their tax implications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Transposition of the EU Accounting Directive (2013/34/EU). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Competition Law Crying over spilt milk: German Federal Cartel Office requires organic dairies to demerge following incorrect information in merger control notification. . . . . . . . . . . . . . . . 12 News ........................................................... 14 Contact ........................................................ 15

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Again in this new issue of GTCI we highlight a number of legal developments and court rulings particularly relevant to international corporations and investors in Germany. We start with summing up a discussion draft regarding a reform of the German Investment Tax Act published by the Federal Ministry of Finance in July. Then, we take a closer look at a ruling by the Federal Tax Court according to which income attributed to German shareholders under the rules on controlled foreign companies (CFCs) is not subject to trade tax. On October 5, the OECD presented the final BEPS package of measures for a comprehensive and coordinated reform of international tax rules. We explain what consequences the package will have in practice. Also, we outline the main proposals made in the long-awaited draft “Uncertainty over Income Tax Treatments” interpretation published for public comment by the IFRS Interpretations Committee. In addition, we take a closer look at German real estate transfer tax provisions, outline the main changes to be expected from the reform of the German Investment Tax Act and examine the new rules on convertible bonds and preference shares and their tax implications. Finally, we deal with the transposition of the EU Accounting Directive (2013/34/EU) and report on a recent post-merger investigation initiated by the Federal Cartel Office. We hope our current choice of topics finds your interest. The FGS editorial team

German Tax & Corporate Insights

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Proposed abandonment of the tax exemption regime for portfolio investments — need for action? In July 2015, German’s Federal Ministry of Finance published a discussion draft regarding a reform of the German Investment Tax Act. Besides fundamental changes to the taxation of income received by German investors through investment funds, the draft proposes a significant amendment to the participation exemption rules in Sec. 8b of the German Corporate Income Tax Act (CITA), namely that the 95% tax exemption for capital gains derived by corporate shareholders from portfolio investments would be abandoned. According to the draft law (Sec. 8b(4) CITA), such gains would be fully taxable. If the draft is adopted and enacted, the new rules will take effect on January 1, 2018. Capital gains realized after December 31, 2017 would then be taxed. Current law and proposed new rules Under the current law, capital gains realized from sales of shareholdings by German corporate shareholders are (in most cases) effectively 95% exempt from tax, with no minimum shareholding requirement. The discussion draft proposes abolishing the participation exemption for capital gains in cases where a German corporate shareholder directly holds less than 10% of the share capital of the corporation whose shares are being sold. Until 2013, the 95% tax exemption also applied to dividends received by German corporate shareholders, with no minimum shareholding requirement. The 95% exemption for dividends derived

from less-than-10% shareholdings in subsidiaries was abolished with effect from March 1, 2013. As a result, the announced amendments should complement the amendments realized to date. Limitations of loss offsetting According to the discussion draft any losses in connection with portfolio shareholdings, e.g. from a disposal or a write-down to market value, could be offset only against capital gains from portfolio shareholdings. Any remaining balance of losses from portfolio shareholdings could be carried forward and offset against future profits from portfolio shareholdings, with no time limitations. The loss carryforward would be subject to the general change-inownership rules and, therefore, could be forfeited upon a relevant shareholder change.

owned foreign subsidiary. The foreign subsidiary should be based in a country which does not tax capital gains and dividends from portfolio investments in (foreign) companies — neither under national law nor under the law of double taxation treaties. The portfolio shares should be transferred before the new provisions of Sec. 8b(4) CITAdraft will be set into force. But given the fact that only a discussion draft exists at the moment, corporate shareholders should not be too hasty in transferring their portfolio investments. It is not yet clear whether the governmental draft will contain the described provisions. A premature transfer of shares would result in a — probably unnecessary — tax burden. Also, according to current law capital gains would be tax-exempt up to 95%, 5% would still be taxable. Contact

Reduced tax rate for venture capital investments The discussion draft also proposes that capital gains from certain venture capital (e.g. start-up) investments would benefit from a reduced tax on capital gains during the period 2018–2027. The tax on eligible capital gains would be reduced to 30% of the acquisition costs of the shares sold, but would be limited to the amount of corporation tax paid on the capital gains derived from the shares. To benefit from the reduced tax rate, the shares would have to be newly issued shares bearing voting rights, not be listed on a stock exchange, and have been held for at least three years. Practical consequences To avoid tax liability for capital gains on shareholdings of less than 10% in Germany, German corporate shareholders could transfer their portfolio investments to a wholly

Dr. Arne von Freeden Phone +49 228/95 94-266 [email protected] (Bonn office) Dr. Dietmar Lange Phone +49 228/95 94-0 [email protected] (Bonn office)



CFC income not subject to trade tax in Germany The German Federal Tax Court in Munich ruled in March that income attributed to German shareholders under the German rules on controlled foreign companies (CFCs) is not subject to trade tax. The decision aligns the tax treatment of CFCs with the treatment of income from foreign permanent establishments. Now, the response of the German legislature and tax authorities remains to be seen. German CFC legislation has long been a bone of contention between taxpayers and the German tax authorities. First introduced in 1972, its main provisions are contained in Secs. 7–14 of the German Foreign Tax Act (Außensteuergesetz). Under these rules, German resident taxpayers can be taxed on the income of their foreign affiliates. This requires in most instances that more than 50% of the shares or voting rights in a foreign corporation are held by German resident taxpayers. In exceptional circumstances, the threshold can be lowered to 1% or even abandoned altogether for certain types of capital income. The income of the foreign corporation must be taxed at a low rate, which German tax law defines as a threshold of 25% or less (effective) tax rate. Furthermore, the foreign corporation’s income must be “passive”. Any income is regarded as passive if the taxpayer is unable to show that it meets the criteria of at least one out of ten categories of active income. Interest income in particular is in the crosshairs of CFC legislation. To the extent that the legal requirements for CFC taxation are met, the (positive) income of the CFC is attributed to

the German shareholder at the end of the CFC’s fiscal year. At the level of the German shareholder, it is treated as capital income in the case of a natural person. If the shareholder holds the shares in the CFC as business assets for tax purposes, the income is treated as business income. The usual exemptions or methods of mitigating double taxation available under German tax law, such as Germany’s participation exemption (Sec. 8b of the Corporate Income Tax Act (Körperschaftsteuergesetz), the partial income system (Teileinkünfteverfahren) or the final withholding tax (Abgeltungsteuer), do not apply to CFC income. For income tax purposes, the CFC income is therefore subject to full taxation at the level of the shareholder, either (progressive) personal income tax or (flat) corporate income tax. A credit for foreign taxes borne by the CFC is available upon application. However, it is subject to the usual caveats for tax credits, such as the hazard of excess tax credits — under German law, the guiding principle is “use it or lose it”, since there is no carryforward or carryback for excess tax credits. Whether German trade tax is due on CFC income continues to be hotly debated in the literature. On the one hand, trade tax, by its very nature, is supposed to be charged on German domestic income only. According to the prevailing opinion in the German tax literature, it is designed to compensate municipalities in Germany for the usage of their infrastructure by businesses based locally. To this end, trade tax law contains exemptions for income from foreign permanent establishments and subsidiaries. On the other hand, the Foreign Tax Act contains clear hints that the legislature sees a trade tax burden on CFC

3 income as a matter of course. On top of 15% of corporation tax and an effective 0.875% of solidarity surcharge, a German corporation owes an additional 7–18% of trade tax on CFC income, depending on the municipality in which it maintains domestic permanent establishments. No credit for foreign taxes is available for trade tax purposes. What’s more, the trade tax itself does not constitute a deductible business expense, so no mitigation whatsoever is available for the trade tax on a corporation’s CFC income. To complement the CFC rules, Sec. 20(2) of the Foreign Tax Act stipulates a switch-over from the exemption method applicable under a double tax treaty to the credit method. The switch-over applies to income of a foreign permanent establishment if that income were subject to the usual CFC rules — were it derived by a foreign corporation instead of a permanent establishment. In this case, there is broad agreement that no trade tax is due on such income since there is a comprehensive exemption for income from foreign permanent establishments for trade tax purposes (Sec. 9 no. 3 of the German Trade Tax Act (Gewerbesteuergesetz)). In a recent case, the plaintiff challenged this status quo by arguing that CFC income derived from a foreign affiliate should not be subject to trade tax. Although the lower tax court of Düsseldorf did not agree and ruled in favor of the tax administration (ref. no. 16 K 2513/12 G, dated November 28, 2013), the Federal Tax Court in Munich sided with the plaintiff (ref. no. I R 10/14, dated March 11, 2015). It stated that CFC income is not subject to German trade tax under current tax law.



The decision was based on Sec. 9 no. 3 of the German Trade Tax Act, which stipulates that income derived by a trade tax payer from a foreign permanent establishment is to be subtracted from income for trade tax purposes. The court argued that CFC income should be regarded as deriving from a permanent establishment abroad. It also specifically mentioned that the treatment of foreign corporations (Secs. 7–14 of the Foreign Tax Act) and foreign permanent establishments (Sec. 20(2) of the Foreign Tax Act) is aligned more closely by virtue of its decision. While this was a happy outcome for the plaintiff, it cannot yet be predicted how the German legislature and tax authorities will respond. It is generally deemed unlikely that the law will remain unchanged in this area. The German legislative process for the fiscal year 2016 does not, however, instigate a change in the tax law relevant in this case. Taxpayers should thus pay very close attention to future developments. Contact Dr. Martin Weiss Phone +49 30/21 00 20-20 [email protected] (Berlin office)

BEPS & information exchange — German tax court affirms the principle of confidentiality and secrecy in tax matters On October 5, 2015, the OECD presented the final BEPS package of measures for a comprehensive and coordinated reform of international tax rules. This will result in increasing transparency because domestic and foreign tax authorities will be authorized to exchange information (“country by country reporting”). However, the Tax Court of Cologne ruled that, according to existing German tax law, the principle of confidentiality and secrecy in tax matters prohibits the exchange of information if a breach thereof is not justified by specific taxation issues in individual cases. The Tax Court of Cologne decided on September 7, 2015 (ref. no. 2 V 1375/15) that the German principle of confidentiality and secrecy in tax matters according to Sec. 30 of the General Tax Code (AO) generally limits the exchange of information between German and foreign tax authorities. Under existing tax law, this principle is suspended only if certain legal bases are applicable (i.e. information exchange under a double tax treaty, Sec. 117 of the General Tax Code, Act Implementing EU Directive 2011/16/ EU), under which the exchange of information would be permissible. However, the mere fact that a taxpayer is an affiliated company does not suspend the application of the principle of confidentiality and secrecy in tax matters. These legal bases stipulate that the exchange of

4 information between German and foreign tax authorities is allowed only if the exchange is required (“erforderlich”) and probably relevant (“voraussichtlich erheblich”). The exchange of information is required only if the serious possibility exists that a (specified) foreign state has a right to tax and otherwise would not be able to exercise such right. The exchange of information is probably relevant only if, at the time of the request for information exchange, a reasonable possibility (“vernünftige Möglichkeit”) exists in the view of the requesting authority that the information is relevant for taxation. General requests or “fishing expeditions” do not fulfil such requirements. Furthermore, the exchange of information is not justifiable if the information is exchanged only for the sake of efficiency, i.e. to reduce the tax authorities’ workload in investigating the facts of the case. The subject of the case was the German tax authorities’ intention to exchange information (e.g. an overview of the group, the ownership structure, the business model) with multiple foreign counterparts on several digital-economy companies in order to generally determine the reasons for a comparably low effective group tax rate. One of these companies successfully applied for an interim order to prohibit such exchange because this flow of information is not required and probably not relevant for taxation. The tax court affirmed the opinion of the taxpayer, for the following reasons in particular: • The request concerned only the general business model of digital-economy companies and the taxation thereof. The sole aim was to gain knowledge of how to close



loopholes in tax law. • The requests did not include a (detailed) description of the facts of the case that could be relevant for taxation. • The requests of the German tax authorities were similar in every case except for the name of the company. Therefore, the tax authorities could not demonstrate that the request was relevant for the taxation of any given taxpayer. The tax authorities were not able to prove any relevance for taxation in individual cases. • The files of the German tax authorities included documents which indicated whether the taxation of the group companies involved was in line with German or foreign tax law. • The tax court did not accept the German tax authorities’ arguments that such exchange was relevant because it would increase their efficiency in investigating the facts of the case and taxation procedure. • The tax authorities did not specify for which individual affiliated company a tax loophole might exist; it is not sufficient justification for the exchange of information that a tax loophole might exist for any affiliate (in any country). Further, the tax court ruled that the principle of confidentiality and secrecy in tax matters is not sufficiently protected by the fact that the foreign tax authorities would keep the information secret. According to the tax court judgment, the exchange of information without reference to a taxpayer’s individual taxation issues is not allowed under current German tax law. The exchange of information is permitted only if the purpose and relevance for taxation of the exchange is described in detail. Otherwise good arguments exist to justify such exchange. Temporary legal protection against

such exchange can be gained by requesting an interim order pursuant to Sec. 114 of the General Tax Code. However, it can be assumed that German tax law will be amended (soon) to implement the BEPS measures, especially measure 13 (country by country reporting). Time will tell what principles will be introduced into tax law, enabling further, more general information to be exchanged between German and foreign tax authorities. Contact Dr. Sven Kluge Phone: +49 228/95 94-0 [email protected] (Bonn office) Dr. Sven-Eric Bärsch, LL.B. Phone +49 228/95 94-0 [email protected] (Bonn office)

Accounting for tax uncertainties under IAS 12 — new developments On October 21, 2015, the IFRS Interpretations Committee (IFRS IC) published for public comment the longawaited draft Interpretation “Uncertainty over Income Tax Treatments” (DI/2015/1). Although accounting for tax uncertainties is of considerable practical importance, it is not specifically addressed by IAS 12. Therefore the publication of the draft Interpretation can be considered a milestone in the further development

5 of the standard. The draft Interpretation proposes guidance on the recognition and measurement of current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The main proposals are as follows: As a first step, accounting for uncertainty over income tax treatments requires a suitable basis, e.g. the entire tax computation, individual tax uncertainties or a group of related tax uncertainties. The accounting basis can be considered a key input, since selecting the entire tax computation would make determining the recognition threshold obsolete by reducing the accounting issue to a mere question of measurement (one-step approach). According to the proposed guidance, there will be a choice only between considering each tax treatment separately or considering some tax treatments together as a group, depending on which approach better predicts the resolution of the uncertainty (DI/2015/1 para. 11). This results in a two-step approach, where uncertain tax treatments are recognized only if they exceed a defined minimum probability threshold. Accounting for uncertainty over income tax treatments is also strongly influenced by the level of detection risk prescribed by the standard setter. The proposed guidance requires an entity to assume that a taxation authority with the right to examine amounts reported to it will do so and have full knowledge of all the relevant information when examining such amounts (DI/2015/1 para. 13). In terms of recognition, the proposed guidance requires an entity to consider whether it is probable (i.e. more likely than not) that a taxation authority — which might include


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a court — will accept an uncertain tax treatment. If the entity concludes that this is probable, DI/2015/1 para. 15 requires (i) taxable profit (or loss) or tax rates — for current taxes — and (ii) tax bases, unused tax losses, unused tax credit or tax rates — for deferred taxes — to be determined consistently with the tax treatment included in the entity’s income tax filings. Otherwise the entity is obligated to reflect the effect of uncertainty in determining the related taxable profit (or loss), unused tax losses, unused tax credit or tax rates (DI/2015/1 para. 16). The proposed guidance applies a uniform recognition threshold (“probable”) to the relevant uncertain tax treatment(s). Thus the timing of payments does not affect the amount of current tax recognized. This had long been disputed, since many entities derived their accounting methods for uncertain tax treatments from IAS 37, which defines different recognition criteria for contingent liabilities (“probable”) and contingent assets (“virtually certain”). As a consequence, it was unclear whether an immediate payment in respect of a disputed amount — e.g. when a tax examination results in an additional charge but the entity intends to appeal — justified the recognition of a current tax asset (the realization of which was considered probable, but not virtually certain). In terms of measurement, the draft Interpretation proposes reflecting the effect of uncertainty by using either the most likely amount — the single most likely amount in a range of possible outcomes — or the expected value, i.e. the sum of the probability-weighted amounts in a range of possible amounts. The entity must use the method that it concludes will better predict the resolution of the uncertainty. The most likely amount may provide the better

prediction if the possible outcomes are binary or one outcome is much more likely, whereas the expected value is more appropriate if the possible outcomes are widely dispersed. These proposals are in line with the methods already developed and applied in practice. The draft Interpretation also proposes guidance on how to deal with changes in facts and circumstances. If an entity’s conclusions about the acceptability of tax treatments or its predictions as to the effect of uncertainty change, the taxable profit (or loss) and the tax bases, unused tax losses, unused tax credits or tax rates have to be adjusted accordingly in the period of the change (DI/2015/1 para. 18). Here, the draft Interpretation refers to the results of examination(s) by taxation authorities and distinguishes between the explicit and implicit acceptance of an entity’s tax treatment. Whereas the explicit acceptance of an entity’s tax treatment may affect similar tax treatments for other periods (DI/2015/1 para. A5), the implicit acceptance of an entity’s tax treatment is not necessarily a new fact for similar tax treatments that are not within the scope of the examination (e.g. similar tax treatments for other periods (DI/2015/1 para. A6). The draft Interpretation does not introduce any new disclosure requirements, but highlights the relevance of the existing disclosure requirements in IAS 1 para. 122 and paras. 125-129. Thus an entity must determine whether it should disclose judgements made in the process of applying its accounting policy to determine taxable profit (or loss) and tax bases, unused tax losses, unused tax credits or tax rates. An entity must also determine whether it should disclose information about the assumption(s) it makes and other predictions used in determining taxable

profit (or loss) and tax bases, unused tax losses, unused tax credits or tax rates (DI/2015/1 para. 21). As IAS 12 is more or less silent on the question of how to address uncertain tax treatments, one might well ask whether the scope of the proposed guidance is not too broad for an interpretation (as opposed to an amendment of the standard). Nevertheless, the draft Interpretation can be considered a decisive step in developing an appropriate solution to this important area of accounting. Contact Lars Ruberg Phone +49 228/9594-0 [email protected] (Bonn office)

German real estate transfer tax provisions — substitute tax base unconstitutional In July 2015, the German Federal Constitutional Court held that the substitute tax base (Ersatzbemessungsgrundlage) particularly applicable to reorganizations and share deals is unconstitutional. The legislature now has until June 30, 2016, to adopt new regulations with retroactive effect as of January 1, 2009. It has already responded to this call. Background Pursuant to Sec. 8(2) of the German Real Estate Transfer Tax Act (RETTA), the substitute tax base is an alternative



method to determine the value of real estate in cases in which the real estate is not directly acquired. Thus, the substitute tax base is particularly applicable to direct or indirect transfers of at least 95% of the shares in real property-owning entities and reorganizations. The substitute tax base is determined in accordance with the German Valuation Tax Act (Bewertungsgesetz — VTA). According to Sec. 138 et seq. VTA the substitute tax base must, for instance, correspond (i) to 80% of the land value in the case of undeveloped land and (ii) in principal to 12.5 times the actual annual rent minus a certain depreciation discount depending on the age of the building in the case of developed land. These methods provide only a rough guide, so the value calculated is usually substantially lower than the fair market value of the real property. In many cases, the determined value reflects an average of only (i) approx. 50% of the real property’s fair market value in the case of developed land and of (ii) approx. 70% of the property’s fair market value in the case of undeveloped land. Decision On July 17, 2015, Germany’s Federal Constitutional Court published a decision dated June 23, 2015 — 1 BvL 13/11, 1 BvL 14/11 — according to which the provision concerning the substitute tax base violates the principle of equality (Gleichheitssatz) pursuant to Art. 3(1) of the German Constitutional Law and is, hence, unconstitutional. This is because the substitute tax base significantly deviates from the fair market value of the real estate without reasonable cause. For the purposes of equality in taxation, the substitute tax base should — according to the view of the Federal Constitutional Court — instead result in values that broadly reflect the fair market values of the real estate, as in the case that the real estate is directly acquired. In such

cases, the purchase price as the regular tax base should generally reflect the fair market of the real estate for RETT purposes. Consequently, the Federal Constitutional Court called upon the legislature to introduce a new provision to constitutionally determine the substitute tax base by June 30, 2016, with retroactive effect as of January 1, 2009. The new provision will therefore apply to RETT-triggering events realized after December 31, 2008, unless the application is prevented for procedural reasons by the German General Tax Code (Abgabenordnung). Furthermore, the court decided that RETT should not be levied based on the substitute tax base until a new provision takes effect. The legislature’s response The German legislature has already responded to the call by the German Federal Constitutional Court. The proposed legislation, including the revised provision on the substitute tax base, was recently adopted by German Federal Council and will take retroactive effect as of January 1, 2009. According to this legislative proposal, the substitute tax base for RETT-triggering events must be determined by applying the real-estate values for inheritance and gift tax purposes pursuant to the Valuation Tax Act likewise for RETT purposes (Sec. 157 et seq. VTA). Real-estate values for inheritance and gift tax purposes have been adapted in the recent past in order to more closely reflect the fair market values of real estate. Impact The new provision on the substitute tax base will apply to all future cases of RETT-triggering events. Due to its

7 retroactive effect, it also applies to past RETT-triggering events that occurred after December 31, 2008 as follows: (i) The RETT-triggering event has already occurred, but neither RETT nor the real-estate values have been assessed yet; (ii) The RETT-triggering event has already occurred and the real-estate values have been assessed, but are not yet binding because an appeal has been filed against the values determined; (iii) The RETT-triggering event has already occurred, but has not yet been indicated or detected. However, if the RETT-triggering event has already occurred and either RETT or the real-estate values have been assessed only on a preliminary basis (e.g. Sec. 165 General Tax Code), the new provision will generally not apply to that RETT-triggering event because the legitimate expectation regarding the determination of the substitute tax base is protected (Vertrauensschutz, Sec. 176 General Tax Code). Recommendation for taxpayers The decision of the Federal Constitutional Court and the response of the German legislature will increase RETT exposure in cases in which the substitute tax base applies. The scope of the substitute tax base refers particularly to direct or indirect transfers of at least 95% of the shares in real property-owning entities and reorganizations. Both future RETT-triggering events and RETT-triggering events that occurred after December 31, 2008 will be subject to the revised provision on the determination of the substitute tax base. For RETT-triggering events that have already occurred, repercussions could arise in a



considerable number of cases in Germany. Taxpayers are therefore well advised to scrutinize whether any such RETT-triggering events have occurred recently or are expected to occur in the future, thereby increasing the RETT burden. Contact Dr. Nicole Schwäbe +49 69/717 03-0 [email protected] (Frankfurt office)

Reform of the German Investment Tax Act In July 2015, the German Federal Ministry of Finance published a discussion draft for a proposed German Investment Tax Reform Act (Investmentsteuerreformgesetz). It sets out substantial changes to investment taxation in Germany by introducing two tax systems functioning independently of one another. Scope of application According to the discussion draft, the definition of an investment fund is in principle based on regulatory law. Consequently, an investment fund will be any collective investment scheme within the meaning of the German Capital Investment Code. The two main exceptions are single-investor funds, which will also qualify as investment funds, and partnerships, which will not qualify as investment funds unless they are UCITS partnerships. The

discussion draft distinguishes between investment funds and special investment funds. New opaque tax regime for investment funds For investment funds, the discussion draft provides for an opaque tax regime to replace the decades-old principle of transparent investment fund taxation in Germany. Both domestic and foreign investment funds will in future be subject to German corporate income tax plus solidarity surcharge (15.825%) on their domestic income (in particular dividends from German corporations, rental income and capital gains on the disposal of domestic real estate, and capital gains from the disposal of significant investments in German corporations). To the extent an investment fund has tax-exempt charitable investors, churches or foundations or its shares are held in the context of German retirement investment contracts, it can obtain an exemption from German corporate income tax. Investment funds will generally remain exempt from German trade tax under the same circumstances as at present. At the investor level, income from the investment fund will, in principle, be taxed only in the event of distribution or disposal of the investment fund units. By way of exception, the investor will be taxed on an advance lump-sum amount (Vorabpauschale), which is determined at 80% of the basic interest rate applied to the redemption price of the fund units at the beginning of each calendar year (actual distributions of the fund will be deducted). The advance lumpsum amount is restricted to the amount of increase in value of the fund units during the calendar year in question. To take into account prior tax burdens on the fund’s income at the level of the fund, the draft provides for a

8 new partial exemption regime at the investor level. The following will be tax-exempt at the level of the investor: • 20% of the income from investment funds that continuously invest at least 51% of their assets in stocks, •4 0% of the income from investment funds that continuously invest at least 51% of their assets in domestic real estate, and •6 0% of the income from investment funds that continuously invest at least 51% of their assets in foreign real estate. For private investors, income from investment funds is subject to the flat tax regime (Abgeltungsteuer). Tax exemptions for dividends (partial income procedure, participation exemption) do not apply. Modified transparent tax regime for special investment funds The discussion draft contains separate provisions for special investment funds, which are defined as investment funds that: • c omply with a set of requirements which in principle match the currently applicable criteria for investment funds •d o not have more than 100 investors and •d o not have individuals as investors. In contrast to the currently applicable rules, indirect investments of individuals via partnerships will be detrimental (time-limited grandfathering provisions apply for individuals currently investing via partnerships). In principle, the opaque tax regime described above will also apply to special investment funds. However, special investment funds may opt for a full corporate income tax



exemption (known as a ‘transparency option’) if: • in respect of German source participation income and other German source income that is subject to German withholding tax at source, the special investment fund irrevocably declares vis-à-vis the party being obliged to withhold withholding taxes that the tax certificates should not be issued to the special investment fund but to the investors, and • the special investment fund levies withholding taxes at a rate of 15% on German source real-estate income and other German source income that is not subject to German withholding tax at source. A special investment fund will always be exempt from trade tax as the exemption from trade tax is a prerequisite for qualifying as a special investment fund.

Transitional provisions The new provisions will apply from January 1, 2018. At that time the draft provides that units in investment funds and corporate investment companies under the current law are deemed to be disposed of. Such notional disposal will not result in immediate taxation of the capital gains but will be determined separately and taxed at time of the actual disposal. Concerning ‘millionaire funds’ (set up in the past in connection with the flat tax regime), the discussion draft provides for the grandfathering rule to be limited in time to changes in value occurring by December 31, 2017. A lumpsum threshold of € 100,000 for future increases in value will apply. Contact

The currently applicable transparency principle will continue to apply to the investors in special investment funds. This means that the investors will be taxed on distribution proceeds, proceeds deemed distributed (slight changes compared to the current regime, e.g. 10% of the capital gains from the disposal of any capital claim will in future be deemed to be distributed), and capital gains from the disposition of fund units. Such proceeds are fully subject to taxation (no participation exemption applies). If a special investment fund does not opt for a tax exemption, such income will also be subject to a partial exemption regime at the investor level: 60% of German source participation income and 20% of German source real-estate income will be tax-exempt. Investors that are subject to corporate income tax can achieve a full tax exemption.

Dr. Jan Dyckmans Phone +49 69/717 03-0 [email protected] (Frankfurt office)

9 Breaking old habits in German corporate finance: new rules on convertible bonds and preference shares and their tax implications When the long-planned Amendment of the Stock Corporation Act will finally become law in early 2016, it could spark new interest in preference shares and convertible bonds, and not only with financial institutions. However, the tax consequences regarding convertible bonds should be considered carefully. So far, German law has taken a strict stance on preference shares without voting rights. According to Secs. 12, 139-141 of the German Stock Corporation Act (AktG), voting rights can be excluded only if the preference shareholder is entitled to an “advance dividend” which is distributed before the ordinary shareholders may receive their share in the company’s profits (Vorabdividende) and if dividends that are omitted for whatever reason are accrued and have to be paid in later years. If dividends are omitted, shareholders receive full voting rights until all arrears are paid. Furthermore, as omitted dividends are accrued, preference shares without voting rights of German banks organized as stock corporations do not count towards Tier 1 capital under the Basel III rules as implemented by the Capital Requirements Regulation (EU) No. 575/2013. To remedy these shortcomings, the Amendment of the Stock Corporation Act (Aktienrechtsnovelle, BR-Drucks. 22/15) provides for a twofold relaxation: Voting rights may also be excluded (i) if the preferential dividends are not accrued on omission and do not have to be paid in later years (cf. Sec. 139(1) sentence 1 AktG) and (ii) if the preferential


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treatment of the shareholders of preference shares consists (only), for example, in a larger dividend than that paid to regular shareholders (Mehrdividende, cf. Sec. 139(1) sentence 2 AktG). Although these changes primarily aim at German financial institutions, they might also make preference shares without voting rights more attractive to companies in other sectors and to investors. The new rules regarding convertible bonds aim to enhance legal certainty. According to Sec. 221(1)AktG, convertible bonds grant the creditor the right to be repaid in cash or in shares of the issuing company. However, there may be situations in which the company would prefer to decide for itself whether and when the conversion should be brought about, especially in restructuring cases. Most commentators have, therefore, regarded both mandatory convertible bonds (Pflichtwandelanleihen) and soft mandatory bonds, which enable the company to decide on the conversion (umgekehrte Wandelanleihen), as permissible under current law. Three new words inserted into Sec. 221(1) AktG and supplementary amendments to Secs. 192 et seqq. AktG (concerning capital increases to create the shares needed for the conversion) intend to incorporate at least soft mandatory convertible bonds explicitly into the German Stock Corporation Act. Arguably, convertible bonds with a mutual conversion right and mandatory convertible bonds without any conversion right should also be covered by the new rules. Furthermore, the proposed amendment of Sec. 192(3) AktG provides for a conditional capital increase without the usual limit (50% of the company’s nominal capital) if the conditional capital increase is adopted for the sole purpose of either (i) enabling the company to avert illiquidity or overindebtedness, or (ii) if the company is a financial

institution, fulfilling regulatory requirements or requests for a restructuring or a liquidation of the company. Whether and to what extent companies and especially banks will make use of “crisis convertibles” and “regulatory convertibles” remains to be seen.

(Bundesfinanzhof) has ruled for American-style convertible bonds (which can be converted at any time until their maturity) that no deferred item may be booked for the conversion premium (judgment of November 11, 2014, case no. I R 53/13).

Preference shares are classified as dividend-generating equity for German tax purposes irrespective of their distinctive characteristics such as the newly introduced noncumulative dividends or advance or larger dividends. Dividends from preference shares are, therefore, not tax-deductible for the German issuer and are subject to a combined effective rate of approximately 29% for incometax and trade-tax purposes, whereas foreign investors are subject to zero or limited German withholding taxes if tax treaty benefits or EU directives benefits are granted.

In addition, interest payments on convertible bonds might be subject to German withholding taxes (15% to 25%). The official view of the Federal Ministry of Finance is that at least interest payments derived from certain contingent convertibles are not subject to German withholding taxes. However, representatives of the ministry have indicated that this view might not apply for other convertible bonds. Therefore, the newly won legal certainty with regard to the company law on convertible bonds should be put to use carefully, and legal certainty with regard to tax matters may still be obtained only through a binding ruling from the German tax authorities.

Convertible bonds should be regarded as interest-generating debt for German tax purposes, as the Federal Ministry of Finance has ruled that even contingent convertible bonds are classified in this way. Therefore, interest payments on these bonds are entirely deductible for incometax purposes, but the deductible portion for trade-tax (Gewerbesteuer) purposes is only 75%, thereby resulting in an effective tax rate of approximately 3.75%. The financial advantage known as “conversion premium”, i.e. the difference between the interest rate of the convertible bond and the (usually higher) interest rate of a bond without a conversion right, is normally recorded separately as a deferred item on the assets side with a corresponding capital reserve for German (tax) accounting purposes. The release of the deferred item generally leads to tax-deductible expenses. However, the Federal Tax Court

Contact Dr. Thomas Lakenberg, M.Jur. (Oxford) Phone +49 228/95 94-208 [email protected] (Bonn office) Dr. Sven-Eric Bärsch, LL.B. Phone +49 228/95 94-0 [email protected] (Bonn office)


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Transposition of the EU Accounting Directive

Act (PublG) and the German Stock Corporation Act (AktG), as well as their related introductory acts. Its key points are:

On July 17, 2015 the EU Accounting Directive (2013/34/ EU) was transposed into German law by the Accounting Directive Implementation Act (BilRUG). This act is the most comprehensive revision of German accounting law since the Accounting Law Reform Act (BilMoG) of May 25, 2009.

Increase in the thresholds for the size classification of companies The thresholds for the classification of companies as small, medium-sized or large under section 267 HGB have been increased as follows:

The Accounting Directive Implementation Act (BilRUG) is based on the EU Accounting Directive (2013/34/EU) of June 26, 2013, on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings.

balance sheet total

small companies

medium-sized companies

large companies

previously

now

previously

now

previously

now

≤ 4.84

≤ 6.00

≤ 19.25

≤ 20.00

> 19.25

> 20.00

≤ 9.68

≤ 12.00

≤ 38.50

≤ 40.00

> 38.50

> 40.00

≤ 50

≤ 50

≤ 250

≤ 250

> 250

> 250

(in millions of euros) net turnover (in millions of euros) average number of employees

The EU Accounting Directive replaces the Fourth Council Directive (78/660/EEC) on the annual accounts of certain types of companies and the Seventh Council Directive (83/349/EEC) on consolidated accounts. It provides the new basis of accounting law within the EU and serves the enhanced harmonization in order to make annual financial statements and consolidated financial statements more comparable within the EU. Furthermore, it aims to relieve the administrative burdens on small and medium-sized enterprises (SMEs). The BilRUG transposes the EU Accounting Directive into German law, amending it only to the extent necessary to bring it into line with the Directive and relieving the administrative burdens on SMEs to the greatest extent possible. It primarily amends or adds provisions to the German Commercial Code (HGB), the German Disclosure

The adjustment of the thresholds converts about 7,000 medium-sized companies into small companies, disburdening them from certain disclosure duties and from the obligation to have their single-entity financial statements audited. In addition the thresholds for the exemption from the duty to prepare consolidated financial statements under section 293 HGB have been raised by approximately 4%. Extension of the definition of sales revenues The definition of ‘sales revenues’ in Sec. 277(1) HGB has been extended. They are now defined as revenues resulting from selling, renting or leasing products or from providing services after the deduction of rebates, VAT and other taxes directly related to sales revenues (such as

energy tax). The classification of revenues as sales revenues within the meaning of Sec. 277(1) HGB no longer requires the revenues to be related to products or services that are typical of the company’s line of business. This means that in future, income from ancillary activity and possibly Group contributions are also recognized under revenues. Elimination of certain items in the income statement Extraordinary income and extraordinary expenses must no longer be shown as separate items in the income statement pursuant to Sec. 275 HGB. Instead, extraordinary business transactions must now be assigned to the other income statement items. In addition, companies that are at least medium-sized are obliged to provide an explanation in the notes on business transactions of exceptional size or significance, unless the amounts are of minor importance. Now that the items “extraordinary income” and “extraordinary expenses” will no longer appear in the income statement, the differentiation between a result from “ordinary business activities” and an “extraordinary result” has been eliminated. This will influence key performance indicators, which may be relevant for the company’s rating or for agreed covenants. Regulation of the amortization period of self-created intangible assets and of goodwill acquired for valuable consideration Sec. 253(4) HGB contains a new provision on the scheduled depreciation and amortization of self-created intangible assets and of goodwill acquired for valuable consideration. If the expected useful life of a self-created intangible asset or of goodwill acquired for valuable consideration cannot be reliably estimated, the original production or



acquisition costs of this asset or goodwill are to be amortized over a period of, typically, ten years. Amendment to the requirements for the release from the obligations under the provisions of Secs. 264 et seqq. HGB The requirements of Sec. 264(3) HGB under which a subsidiary that is included in consolidated financial statements of an EU/EEA parent is to be released from the obligations to prepare single-entity financial statements, have them audited, and make disclosures under the provisions of Secs. 264 et seqq. HGB have been amended. From now on the EU/EEA parent that prepares the exempting consolidated financial statements must state that it is willing to assume liability for the obligations entered into by the subsidiary up to the balance sheet date of the exempting financial statements. As previously, this requirement can be met by a statutory assumption of losses pursuant to a management control or profit transfer agreement under Sec. 302 AktG. The enlargement of the distribution restriction that was discussed within the framework of the legislative procedure was not included in law. The BilRUG changed a variety of legal provisions with regard to the supplementary disclosures beyond the changes mentioned above. All of the amended provisions apply to financial statements and management reports for financial years beginning after December 31, 2015. However, it is possible to apply the threshold provisions and the amended definition of sales revenues retroactively to financial statements and management reports for financial years commencing after December 31, 2013.

Contact Dr. Ingo Fuchs Phone +49 228/95 94-0 [email protected] (Bonn office) Dr. Marco Meyer Phone +49 228/9594-0 [email protected] (Bonn office)

Crying over spilt milk: German Federal Cartel Office requires organic dairies to demerge following incorrect information in merger control notification The German Federal Cartel Office (FCO) initiated a post-merger investigation on French dairy Savencia’s acquisition of two German organic dairies for having provided the FCO with false information in prior merger control proceedings. In 1999, Savencia acquired shares in Andechser, an organic dairy headquartered in Germany. Savencia markets several conventionally manufactured types of cheese sold under brands such as Bresso, Chaumes, Fol Epi, Géramont, Le Tartare, and Saint Albray. It was known until recently under the name of Bongrain. Starting in 2011, Savencia gradually acquired shares in Andechser’s rival dairy Söbbeke, and this led to full acquisition of Söbbeke in 2013.

12 The acquisition of Söbbeke was subject to merger control clearance by the Federal Cartel Office (FCO), which was granted following the 2011 notification. Soon thereafter, the FCO became aware that it had been given false information in the merger control proceedings, which led the FCO to initiate a formal divestiture proceeding. As a result, the FCO conducted comprehensive investigations covering all organic dairies in Germany, including Andechser and Söbbeke in particular. To assess the market impact of the transaction, the FCO had to define the relevant markets. It came to the conclusion that, from a demand-side perspective, a distinction has to be made between product markets for conventional dairy products and those for organic milk products. The joint market share of Andechser and Söbbeke was well over 50% in certain ‘white line’ organic dairy products (e.g. organic fruit yoghurt, natural yoghurt, organic fruit quark and organic drinks). As a consequence, the FCO held that the acquisition of Söbbeke significantly impeded effective competition on several markets identified, which would have made the FCO prohibit the merger in the first place. Therefore, the 2011 merger control notification did not correctly describe the market situation and was incomplete concerning certain rights of Savencia to exert influence on Andechser. The FCO also learned that Andechser had provided incorrect sales figures when asked for additional data in 2011. In order to prevent the FCO from issuing a formal dissolution order on the acquisition of Söbbeke, Savencia divested its shares in Andechser to the initial vendor. Subsequently, the FCO closed its investigation, surprisingly without imposing a fine on Savencia/Söbbeke for having


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provided false information. Fines on undertakings: Up to 10% of turnover even in merger control proceedings The decision of the FCO not to impose a fine on Savencia/ Söbbeke contrasts with its recent practice in merger cases involving closing without clearance (‘gun-jumping’). Here, one should bear in mind that the FCO is entitled to impose significant fines on undertakings (up to 10% of their worldwide aggregate turnover) and individuals (up to €1 million) for closing before clearance (including foreign-to-foreign mergers) and has done so on various occasions in recent years. In line with the practice of the EU Commission, which imposed a €20 million fine on Norwegian seafood company Marine Harvest in August 2014, the FCO has generally taken a strict stand on gun-jumping (e.g. a €4.5 million fine on Mars for closing its acquisition of Nutro early in 2008). FCO’s divestiture proceedings in the event of gun-jumping The FCO will regularly conduct formal divestiture proceedings once it has learned that the standstill obligation has been violated. When conducting such a post-merger review, the FCO is not bound to the statutory one-month phase I review period applicable to concentrations notified prior to closing. Irrespective of the FCO’s authority to impose fines in the event of gun-jumping, the FCO will only prohibit a concentration significantly impeding effective competition. If the FCO does not prohibit the concentration as a result of such a post-merger review, the acquisition will be deemed valid under German civil law retroactively.

Extended reportability under German merger control rules In addition to the acquisition of (i) direct or indirect control over another undertaking — a concept well known from, inter alia, the EU Merger Control Regulation — the German merger control regime provides for various types of concentrations to be reportable hereunder. From a foreign law perspective, the following cases are of particular note: (ii) the acquisition of market-relevant assets, (iii) the acquisition of 25 per cent (or more) of shares in the capital or voting rights and (iv) any other combination that enables one or several acquirer(s) to directly or indirectly exercise a competitively significant influence on another undertaking (which covers acquisitions of minority shareholdings of below 25 per cent). In addition, the German system provides for the reportability of ‘fictive’ horizontal mergers: If at least two shareholders acquire shares of 25 per cent (or more) in an undertaking, these shareholders will be deemed to have merged on the market(s) of the joint venture, and therefore become ‘undertakings concerned’ within the meaning of, inter alia, the regime of turnover thresholds. Thus, even if the turnover figures of the target and one of the acquirers/shareholders do not exceed the German thresholds (combined worldwide turnover of all undertakings concerned exceeds €500 million; one undertaking exceeding €25 million and at least one further undertaking exceeding €5 million of domestic turnover), such acquisition has to be notified to the FCO — irrespective of the target’s turnover — if the shareholders met such thresholds alone. In foreign-to-foreign mergers, the transaction must also have sufficient domestic effects in order to be notifiable. We will deal with foreign-to-foreign

mergers in a future edition of our German Tax & Corporate Insights. Lessons learned from Savencia/Söbbeke To summarize the recent Savencia/Söbbeke case, it is clear that undertakings subject to merger control proceedings should take a transparent and honest approach vis-à-vis the FCO. The FCO is a powerful authority both in terms of legal competences and resources. Whereas most case teams have a very hands-on approach to the information required for a merger control notification in a case that is likely to be unproblematic, one should not underestimate the FCO’s strictness and attention to detail in cases which raise substantive issues in the market. The fact that Savencia/Söbbeke escaped a fine comes as a surprise and may be due to facts not in the public domain. We certainly do not expect this to be the FCO’s future approach when becoming aware of an undertaking violating German merger control provisions, in particular the standstill obligation or the obligation to provide correct market information. Contact Dr. Florian C. Haus Phone +49 228/95 94-383 [email protected] (Bonn office) Dr. Stephan Wachs Phone +49 228/95 94-0 [email protected] (Bonn office)



Firm news

Restructuring and insolvency law specialist joins FGS in Hamburg The tax team at Flick Gocke Schaumburg’s new office in Hamburg has welcomed Dr. Günter Kahlert as a new partner. Günter Kahlert is regarded as one of Germany’s leading experts in restructuring and insolvency tax law. Günther Kahlert specializes in providing tax advice at the interface of tax law and insolvency law. He advises companies on restructuring and insolvency tax matters in times of crisis and during insolvency proceedings. In particular, he regularly works for insolvency administrators. “Günter Kahlert’s tax expertise is a real gain for our consulting activities,” states Professor Thomas Rödder, Chairman of FGS. “With his support, we will be able to provide insolvency administrators with a far wider range of tax advice.” Flick Gocke Schaumburg has for many years advised clients on tax and legal aspects of restructurings and related matters, but it does not offer insolvency administration. “Insolvency law is having a growing impact on the tax aspects of restructurings,” comments Günter Kahlert. “My role in the new FGS Hamburg team at the interface of tax law and insolvency law will be both an incentive and a challenge.” FGS opened an office in Hamburg in August with a team of around 20 partners and associates. It is the firm’s fifth office in Germany. In July, FGS recruited lawyer and tax advisor Hans-Henning Bernhardt as an Of Counsel for the Hamburg team.

Flick Gocke Schaumburg joins Taxand network Flick Gocke Schaumburg is to join Taxand, an international association of independent tax advisory firms. As of January 1, 2016, the firm will become the exclusive Taxand member for the German market. Taxand was established in 2005, and today counts more than 400 partners and over 2,000 tax professionals in nearly 50 countries. The organisation focuses on high-quality international tax advice, including tax law, transfer pricing and litigation. “Our Taxand membership formalizes and enhances our long-established best-friends approach to tax law,” comments Professor Thomas Rödder, Chairman of the partnership Flick Gocke Schaumburg. “We will gain additional access to tax-law resources in numerous markets, establishing and further expanding our relationships with partner firms, which will enable us to act even more quickly and efficiently in cross-border engagements.” Flick Gocke Schaumburg will be the first German firm to become one of the core member firms that together design the organization’s strategy. “We very much look forward to working together with experienced fellow professionals in many countries and to having the opportunity to actively help in the shaping of a constantly growing network,” Rödder remarks. Flick Gocke Schaumburg will continue to maintain its long-standing proven relations with recognized law and advisory firms abroad, such as its alliance with LeitnerLeitner in Austria.

14 Flick Gocke Schaumburg introduces notary services in Frankfurt Flick Gocke Schaumburg expanded its Frankfurt practice for corporate law and real-estate law with the introduction of a notary service on October 1, 2015. Dr. Finn Lubberich, who has joined the firm from Paul Hastings, is responsible for the new service. In addition to his position as a notary, Finn Lubberich has many years of experience in corporate law/M&A, particularly with cross-border M&A transactions, financing, and real-estate projects. Lubberich initially joins Flick Gocke Schaumburg as an Of Counsel. He will work most closely with the corporate law and real-estate law team headed by partner Dr. Michael Wiesbrock. “Introducing notary services is a logical extension of our activities to provide advice on tax law and economic law to industrial businesses, real-estate companies, familyowned businesses, and private clients,” states Professor Thomas Rödder, Chairman of Flick Gocke Schaumburg. “It adds another discipline to Flick Gocke Schaumburg’s multidisciplinary approach.”


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New partner for the FGS corporate litigation team in Bonn Flick Gocke Schaumburg has welcomed a new addition to its corporate litigation/corporate law department in Bonn. Dr. Matthias Schatz, LL.M. joined the firm in October as an associated partner from German firm Meilicke Hoffmann & Partner. Matthias Schatz will be part of Flick Gocke Schaumburg’s dispute resolution/arbitration team, which is headed by Dr. Lambertus Fuhrmann. His areas of specialism include the in-court and out-of-court settlement of shareholder disputes, legal action concerning the liability of public bodies, and post-M&A disputes. He also advises familyowned businesses on conflict prevention and supports companies in questions of corporate law and stock corporation law. “The arrival of Dr. Schatz marks an important step for us in our expansion,” comments Professor Thomas Rödder, Chairman of Flick Gocke Schaumburg.

Flick Gocke Schaumburg German Tax & Corporate Insights This newsletter is intended for information purposes only. It should not be relied upon as legal advice nor should it be used as a basis for any action or final decision without specifically verifying the applicability and relevant issues on their merits in each case. Your email address is included in the FGS contact database maintained by Flick Gocke Schaumburg. If you no longer wish to receive news from FGS, please feel free to unsubscribe. You can subscribe/ unsubscribe by email to: [email protected] If you have any questions, please contact: Jochen Bahns ([email protected]) or Torsten Engers ([email protected]).

Our firm in brief Flick Gocke Schaumburg Lawyers Public Auditors Tax Advisors Partnership with limited professional liability (Partnerschaft mbB), founded in 1972 www.fgs.de Offices Bonn, Berlin, Frankfurt, Munich, Hamburg, representative offices in Vienna and Zurich Advisors 105 partners, more than 250 associates Expertise German and international tax law, corporate law/M&A, labor law, antitrust law, accounting law, succession/ private wealth/foundations, tax-exempt organizations, tax offences/white-collar and regulatory matters, tax compliance and auditing/ business valuation International Network Flick Gocke Schaumburg has an alliance with law firm LeitnerLeitner in Austria and Central and Eastern Europe. Our firm maintains successful long-term relationships with leading independent law firms throughout Europe, in the United States and in Canada as well as in all other major jurisdictions. This basis enables Flick Gocke Schaumburg to represent and advise clients worldwide.