New administrative interpretation confirms trend: Companies should review international activities early for potential permanent establishment risks
The draft of a new decree on the concept of permanent establishments published by the German Federal Ministry of Finance is attracting considerable attention in tax practice. The draft addresses numerous scenarios that are highly relevant for internationally active companies – from construction and installation projects to representative structures, home office arrangements and management constellations abroad.
Although the draft is not yet final, it sends a clear signal: the tax authorities are specifying and broadening their view of when a fixed place of business or an agency permanent establishment may exist. For companies wishing to become active in Germany, as well as for German companies with international operations, this may have significant tax consequences.
Prof. Peter Anterist, CEO of the InterGest Group, comments: “The draft confirms a trend we have been observing for years: international business development and local tax presence can increasingly no longer be viewed separately. Companies that acquire customers abroad, deploy employees or establish representative structures must review at an early stage whether a local subsidiary or another viable structure is required in the target market.”
A particularly practical aspect is that the draft does not only concern classic branches or business premises. Activities carried out on third-party premises, permanently used workplaces, representative models, home office arrangements or project-related assignments may also come under closer scrutiny in the future. While the individual circumstances of each case remain decisive, the draft sends a clear message: the threshold for tax presence in Germany or abroad should not be underestimated.
From a tax advisory perspective, the draft is particularly relevant because it systematically reorganizes the concept of permanent establishments and brings together numerous individual issues that have been discussed in practice.
Georg Berssenbrügge, Managing Director of InterGest Germany, a certified tax advisory firm, adds an important practical note: “For companies, it is crucial not to start tax planning only once foreign revenues are already being generated. The draft makes clear that organizational presence, economic power of disposal over premises or the use of dependent agents can already trigger tax consequences. At the same time, reviewing the applicable double taxation agreement remains indispensable.”
The practical relevance of the draft is already becoming evident in current advisory discussions: companies that have previously considered alternative sales or representative models are now reassessing their structures in light of the draft. In particular, where the closure of an existing foreign company in favor of a purely representative or agency-based solution is being considered, a careful tax and organizational assessment can be decisive.
The draft makes clear that short-term cost savings should not be viewed in isolation. Depending on the specific structure, representative arrangements, local presence or the use of certain resources may create tax nexus points. Companies should therefore not only ask which structure appears less expensive at first glance, but which solution is legally sound, tax-compliant and operationally viable in the long term.
InterGest recommends that internationally active companies review both existing and planned foreign activities in a timely manner – especially where changes to existing structures are being considered for cost reasons. This includes not only the establishment of new companies, but also the closure of existing entities, a shift to representative models or the relocation of administrative functions.
The BMF draft shows that companies wishing to structure international activities properly should not treat tax matters as an afterthought. Early planning can help avoid risks, optimize existing structures in a meaningful way and establish the appropriate legal and organizational solution in the target market.
Since 1972, InterGest has supported companies in international market entry, the establishment of local structures and ongoing tax support abroad. The current BMF draft underlines the importance of integrated advisory services combining tax law, corporate organization and international expansion.
