Germany Issues Guidance on the Treatment of Tax Transparent Partnerships for the CbCR Safe Harbour

On April 3, 2025, the Federal Ministry of Finance issued a letter on the application of Country-by-Country (CbC) reporting for transparent partnerships, including the impact on the Transitional CbCR Safe Harbour for Pillar 2 purposes.

The letter states that for the disclosure of the information (e.g. profit before taxes, equity, number of employees, etc.) of a tax-transparent partnership in Germany or abroad in a CbCR Report, Chapter 3 Section 2.1 of the OECD Guidance 2024 on the Implementation of Country-by-Country Reporting applies.

A partnership is fiscally transparent for the purposes of the letter if it is not subject to corporation tax under the German Corporate Income Tax Act (or is not subject to a comparable tax abroad).

If the accounting rules require a full or proportional consolidation it must be included fully or proportionally as a group company in the CbCR. For CbCR purposes an adjustment is required to the results of a main entity in relation to results reflected in a Permanent Establishment (‘PE’) to prevent double disclosure. In a cross-border scenario, income taxes paid in the main entity country with respect to the PEs results can be reported in the PEs tax jurisdiction, provided that this is done consistently for all PEs within the group and in all CbCR reports prepared for financial years beginning after December 31, 2023.

The BMF letter contains explanations of the following partnership structures with regard to the Pillar 2 CbCR Safe Harbour (assuming the partnership is tax transparent in Germany and is treated as such by the Group partner entity):

Domestic partnership (with asset management Activity)

The partnership is treated as a stateless entity for Pillar 2 purposes and is therefore excluded from the CbCR safe harbour. The GloBE income is reduced by any amounts attributable to non-group partners and then allocated to the group partner.

The group partner can then apply the CbCR safe harbour (assuming it meets the requirements).

Domestic Partnerships (with commercial income and a domestic PE) and a German resident partner

The partnership is treated as a stateless entity for Pillar 2 purposes and is therefore excluded from the CbCR safe harbour. The domestic PE does not constitute a PE for Pillar 2 purposes.

The GloBE income is reduced by any amounts attributable to non-group partners and then allocated to the group partner. The group partner can then apply the CbCR safe harbour (assuming it meets the requirements).

The information reported in the CbCR report of the domestic permanent establishment is taken into account for the profit or loss before taxes for CbCR Safe Harbour purposes for the Group Partner. If this is not done, the group shareholder is excluded from the CbCR safe harbour.

Domestic Partnerships (with commercial income and a domestic PE) and foreign-based Partner

The partnership is treated as a stateless entity for Pillar 2 purposes and is therefore excluded from the CbCR safe harbour. The domestic PE constitutes a PE for Pillar 2 purposes.

The GloBE income is reduced by any amounts attributable to non-group partners and then allocated to the foreign group partner. The group partner can then apply the CbCR safe harbour (assuming it meets the requirements).

For purposes of the CbCR Safe Harbour for the PE in Germany, the standard CbCR Safe Harbour rules for PEs applies. Therefore the profit or loss before tax corresponds to the annual profit before tax of the domestic PE reported in the CbCR. Simplified covered taxes are the taxes in the PEs accounts under the Pillar 2 rules.

Foreign Partnerships and foreign-based Partner (no domestic PE)

The partnership is treated as a stateless entity for Pillar 2 purposes and is therefore excluded from the CbCR safe harbour.

The GloBE income is reduced by any amounts attributable to non-group partners and then allocated to the foreign group partner. The group partner can then apply the CbCR safe harbour (assuming it meets the requirements).