PROTOCOL

PROTOCOL OF THE CONVENTION BETWEEN THE FEDERAL REPUBLIC OF GERMANY AND THE PRINCIPALITY OF LIECHTENSTEIN FOR THE AVOIDANCE OF DOUBLE TAXATION AND TAX EVASION IN THE TAXATION OF INCOME AND PROPERTY

On the occasion of the signing of the Convention between the two States on the avoidance of double taxation and tax evasion in the taxation of income and property on November 17th, 2011 in Berlin, both States have agreed to the following provisions that form an integral component of the Convention:

(1) On Article 2 (taxes following under the Convention):

If, in accord with this Convention, a person resident in one of the Contracting States is subject in the Principality of Liechtenstein to taxes on his/her property or portions thereof, the resulting taxation of the planned income on this property will be regarded as taxation of the income derived from or with this property.

(2) On Article 4 Paragraph (1) (resident person):

• (a) A German investment fund and a German investment stock enterprise to which the regulations of the Investment Act apply are deemed to be resident in the Federal Republic of Germany.
• (b) A "Liechtensteinian Organismus für gemeinsame Anlagen in Wertpapieren" lit. "Liechtensteinian Undertaking for Collective Investment in Tradeable Securities"](OGAW), to which the laws relating to certain enterprises for collective investment in tradeable securities (UCITSG) and a Liechtensteinian investment enterprise for other securities and real estate properties that has been established according to the Investment Enterprises (German abbr. "IUG") are deemed resident in the Principality of Liechtenstein.
• (c) Persons (such as private property structures under Liechtensteinian law) that are exclusively subject to the minimum tax on income in Liechtenstein are not deemed resident in the Principality of Liechtenstein.

(3) On Article 10 Paragraph (2) (Dividends):

The precondition for the minimum duration of participation according to Article 10 Paragraph (2) Letter (a) is also fulfilled if the participation period is only fulfilled after the date on which the dividend is paid; in this case the permissibility of taking the tax deduction corresponding to Article 30 Paragraph (1) remains unaffected.

(4) On Article 13 (Gains from the sale of property):

• (1) To the extent that, with respect to property that are to be attributed to a permanent establishment located in one Contracting State in the sense of Article 5 of this Convention, a person resident in the other Contracting State is only subject to the application of §4 Paragraph (1) Sentence 3 of the German Income Tax Act (EStG) or §12 Paragraph (1) of the German Corporate Tax Act (KStG) due to the entry into force of this Convention, the following is agreed:
  • (a) A person resident in the Federal Republic of Germany can, on request, form an adjustment item in the amount of the difference between the book value and the common value according to §6 Paragraph (1) Number 4 Sentence 1 second clause EStG of a capital property belonging to the investment property attributed to a permanent establishment located in the Principality of Liechtenstein. The adjustment item must be separately declared for each capital property. The right to apply can only be used uniformly for all capital property. The application is irrevocable. The adjustment item must be redeemed in the fiscal year in which it is formed and in the four subsequent fiscal years; in each case one-fifth of it will be redeemed to increase gains. It must be redeemed in its entirety increase gains:
    • (1) if the capital property deemed withdrawn or sold leaves the person's investment property,
    • (2) if the capital property deemed withdrawn or sold leaves the tax jurisdiction of the Principality of Liechtenstein unless, as a consequence of leaving the tax jurisdiction of Principality of Liechtenstein, it is to be attributed to a permanent establishment located in the Federal Republic of Germany or
    • (3) if the hidden reserves of the capital property deemed withdraw or sold are disclosed in the Principality Liechtenstein or would need to be disclosed under corresponding application of the provisions of German tax law.
  • The above shall apply when determining the excess business income above the business expenses in accord with §4 Paragraph (3) EStG. Capital property, for which an adjustment item has been formed, are to be recorded in a register that must be kept up to date. The person must also keep records from which the formation and redemption of the adjustment item can be discerned. These records must accompany the tax return.
  • The person is obligated to immediately report any event with respect to the numbers above to the responsible financial authorities. If the person does not fulfill this reporting obligation, his/her recording obligations or other obligations to cooperate in the sense of §90 of the German Fiscal Code (AO), the adjustment item for this capital property is to be redeemed to increase gains.
  • (b) Letter (a) shall apply analogously to a person resident in the Principality of Liechtenstein.
• (2) To the extent that, with respect to property that are not attributable to a permanent establishment located in one Contracting State in the sense of Article 5 of this Convention, a person resident in another Contracting State is only subjected to the application of §4 Paragraph (1) sentence 3 EStG or §12 Paragraph (1) KStG by the entry into force of this Convention, the following is agreed:
  • (a) The tax owed for this is to be deferred without interest and without collateral. The deferment is to be revoked,
    • (1) to the extent that property are sold or are deemed sold under German tax law, are covered by being contributed to a enterprise in the sense of §17 Paragraph (1) EStG or that in the case of shares of capital companies one of the conditions of §17 Paragraph (4) EStG is fulfilled;
    • (2) to the extent that property are transferred to a person who is not subject to tax liability comparable to the German unrestricted income or corporate tax liability in one of the two Contracting States;
    • (3)  to the extent that, with respect to property, a withdrawal or other transaction is completed that leads to valuation of the partial value or common value under the law of one of the two Contracting States;
    • (4)  if the person or his/her legal successor is no longer resident in one of the two Contracting States.
    • A conversion process to which the German Conversion Tax Act (UmwStG) of December 7th, 2006 (BGBl. I S. 2782, 2791) in the currently valid formulation shall apply, will not, on request, be considered a sale in the sense of Number 1, if the process is completed at book value for purposes of German tax law or in the case of shares in capital societies included in private property at the acquisition cost.
  • (b) If in the case of shares in capital societies in the case Stated in letter (a) Sentence 2 Number 1, the profit from sale in the sense of §17 Paragraph (2) EStG is lower that the profit resulting from the application of §4 Paragraph (1)Sentence 3 EStG or of §12 Paragraph (1) KStG at the time the deferment ends and the reduction in value is not taken into account in assessing the income or corporation tax in the other Contracting State, the tax assessment is to be abrogated or modified of that extent; §175 Paragraph (1) Sentence 2 AO shall apply analogously. This only shall apply to the extent that the person proves that the reduction in value was caused for operational reasons and is not attributable to a measure under corporate law. The reduction in value is to be taken into account at most in the scope of the gains from the application of §4 Paragraph (1) sentence 3 EStG or §12 Paragraph (1) KStG. If the reduction in value is attributable to a distribution of gains and it is not taken into account in the income or corporate tax, it is to be attributed to the domestic capital gains tax owed on this profit distribution that is assessed on this profit distribution and not entitled to any additional reductions through the application §4 Paragraph (1) Sentence 3 EStG or §12 Paragraph (1) KStG.
  • (c) The person or his/her successor in legal interest must inform the Tax Office that is responsible under §19 AO at the time this Convention enters into force under and using the officially prescribed forms of the realization of any of the conditions of Letter (a) Sentence 2. This report must be given within a month of the reportable event; it must be signed by the person in his/her own hand. In the cases of Letter (a) Sentence 2 Number 1 and 2, the report must be accompanied by a written proof of the legal transaction. The person must inform the Tax Office responsible according to Sentence 1 of his/her valid address as of December 31st of the previous calendar year annually by the date of January 31st, and must confirm that the property must continue to be credited to him/her or his/her legal successor in the case of a non-remunerated legal successor among the living. The deferment under Letter (a) Sentence 1 can be revoked if the person does not fulfil his/her obligations to cooperate according to Sentence 4.
• (3) In the cases of Paragraph (1) Letter (a), the German tax according to Article 23 Paragraph (1) Letter (b) of this Convention must be reduced by the amount of Liechtensteinian tax that would have been collected under the legal provisions of the Principality of Liechtenstein if the property in each case had been sold for the common value; this shall apply also in cases of Paragraph (2), if the person is resident in Germany according to this Convention. If an adjustment item is formed, the German tax according to Article 23 Paragraph (1) Letter (b) of this Convention is in each case to be reduced in proportionally in those years when the adjustment item is redeemed by the amount of Liechtensteinian tax that would have been collected on the amount redeemed. The assessment limitation does not end earlier than two years after reporting by the person to the responsible German tax authorities.

(5) On Articles 14 and 17 (Income from regular employment and old-age pensions, pensions and maintenance payments):

• (a) If a settlement is to be ascribed a providential character, the right to tax is held by the State of residence in accord with Article 17 of this Convention. In contrast, the (former) State in which the work was done has the right to tax to the extent that the settlement derives from back-payments of salary or wages or tantiems from prior employment or the settlement was granted generally for early retirement from service. In the event that an employee was partly employed in the State in which he/she is resident prior to leaving service, this settlement is to be divided in proportion to that time in accord with the assignment of taxation rights for these payments.
• (b) if the settlement payments that a person receives from an employer resident in one Contracting State are not taxed in the State where the person once worked due to the dissolution of the employment relationship, these settlement payments can be taxed in the person's current] State of residence.

(6) On Article 16 (Artist and athletes):

Payments that are rendered as fees for rights to live-broadcast of a performance are income of the artist or athlete who appears or performs under Article 17 Paragraph (1). These income that are made to a third party in connection with the commercial exploitation of live-broadcasts can be taxed in accord with Article 17 Paragraph (2).

(7) On Article 21 Paragraph (2) (Other income):

If the recipient and the debtor of a dividend are resident in the Federal Republic of Germany and the dividend is attributable to a permanent establishment that the recipient of the dividend holds in the Principality of Liechtenstein, the Federal Republic of Germany can tax the dividends at the rates provided for in Article 10 Paragraph (2). If the recipient and the debtor of income in the sense of Article s 11 Paragraph (2) are resident in the Federal Republic of Germany and the income are attributable to a permanent establishment that the recipient of the income holds in the Principality of Liechtenstein, the Federal Republic of Germany can tax the income.

(8) On Article 24 (Non-discrimination):

ARTICLE 24 Paragraph (5) is not to be interpreted as if it obligated a Contracting State to permit the cross-border consolidation of income or comparable privileges.

*(9) [DELETED]

(10) On Article 28 (Official assistance in collecting taxes):

• (a) A request for collection of a claim that the requesting authority sends to the authority receiving the request must be accompanied by an official or certified copy of the deed of execution and if necessary the original or a certified copy of any document necessary for the collection of the claim.
• (b) The responsible authority of the requesting Contracting State can only present a request to collect, if:
  • (i) the request or deed or execution is not disputed in the Contracting State in which the requesting authority is headquartered except in the case that the tax claim is enforceable under Article 28 Paragraph (3); and
  • (ii) it has already carried out a collection procedure in the Contracting State in which the requesting authority is headquartered, as is should be carried out on the basis of the title named in Letter (a) of these the protocol provisions and the measures taken will not lead to the complete redemption of a claim; and
• (c) The request for collection must include the following information:
  • (i) Name, address and other information for identifying the person in question and/or third party owners;
  • (ii) Name, address and other information for identifying the requesting authority;
  • (iii) Reference to the deed of execution that was issued in the Contracting State in which the requesting authority is headquartered;
  • (iv) Type and amount of the claim including the main claim, interest as well as all monetary penalties, fees and costs in the currency of the Contracting States;
  • (v) Date of the day on which the requesting authority and/or the authority receiving the request delivered the deed of execution to the recipient;
  • (vi) Date of the day starting from which and the period during which the collection can be executed according the legal provisions of the requesting contracting party, and all other relevant information.

The request for collection will also contain a declaration by the requesting authority in which it is affirmed that the preconditions set forth in Letter (b) are fulfilled.

(11) On Article 31 Paragraph (1) (Application of this Convention in certain cases):

• (a) Article 31 Paragraph (1) only shall apply to the extent that persons participate in the enterprise who would have no or no full claim to privileges under this Convention. To the extent that persons participate in the enterprise who have a claim to privileges under a different Convention of the other Contracting State or under the provisions of Guideline 90/435/EEC in the currently valid form, Sentence 1 shall apply with the proviso that an existing claim of these persons under such a different Convention or under the Guideline 90/435/EEC is only to be taken into account if they also fulfill the preconditions of Article 31 Paragraph (1) of this Convention in their State of residence.
• (b) An active commercial activity is only given if the activity is exercised by the enterprise itself with the its own organization and own personnel in the scope appropriate for its business purposes of the operation and if both operative and managerial activities will be pursued and more than 25 percent of the total gross income for the fiscal year in question will be derived from this commercial activity.
• (c) If the enterprise's business consists primarily in the business management of other companies, the activity is only deemed an active commercial activity if it encompasses leadership decisions affecting at least two of the controlled companies that are themselves commercially active and the enterprise substantially owns its own business offices, has its own personnel and its own equipment. Leadership decisions are characterized by their permanency, fundamental importance and significance that they have for the existence of the companies managed. They are district from decisions that are short-term and execution- oriented. The performance of only some business functions does not suffice for the qualification as a leadership decision.

(12) On Article 31 Paragraph (2) (Application of this Convention in certain case):

A commercial activity in the former Contracting State that is significant when compared with the commercial activity in the other Contracting State in both qualitative and quantitative respects is especially given if the gross income coming from the commercial activity in the former Contracting State make up at least 25 per-cent of the gross income coming from the commercial activity in the other Contracting State.

(13) On Article 31 Paragraph (1) and (2) (Application of this Convention in certain cases):

To the extent that the application of provisions of Article 31 should be precluded by laws of higher precedence with the result of unenforceability, the obligation under treaty law to grant the treaty privileges given in Articles 10 to 12 will be suspended on passage of 12 months form the date on which this violation is established indisputably. In such an event, the Contracting States will immediately enter into negotiations with the goal of reaching a Convention on an equivalent provision that fulfils the requirements of this higher-ranking law. The authorization of a Contracting State to apply unilateral measure to refuse advantage granted to a Contracting State once the treaty obligation to grant treaty privileges is annulled remains unaffected.