Why Good Governance Creates Tax Certainty

The draft, issued for consultation on 13 February 2026, is designed to replace guidelines that have been in place since 1999 and last amended in 2016. Its core aim is to systematise the extensive case law that has developed since then, sharpen the definition of dispositive power (Verfügungsmacht) as the central element of the Betriebsstätte concept, and reflect relevant OECD developments.

Several aspects of the draft are directly relevant for international companies managing operations in Germany.

The first is the treatment of management and service companies. The draft confirms, in line with BFH case law, that engaging a management or service company in Germany can constitute a permanent establishment under certain conditions, particularly where there is an overlap of management personnel or sustained on-site oversight by the foreign entity. Simply outsourcing functions to a German service provider does not automatically avoid the creation of a permanent establishment, and the dividing line depends on the specific facts.

The second is the home office question. The draft clarifies that an employee working from a private home office in Germany does not generally create a permanent establishment for their foreign employer, because the employer typically lacks sufficient dispositive power over those premises. However, important exceptions apply. Where the home office is used to exercise management functions, it may become the company’s place of effective management. In certain circumstances, a permanent establishment may also arise through the activities carried out from the home office.

The third is the anti-fragmentation rule. The draft incorporates the OECD anti-fragmentation clause, which is designed to prevent companies from artificially splitting activities across multiple locations or entities to keep each below the permanent establishment threshold.

What this means for international groups operating in Germany is straightforward: legal entities, the role of local managing directors and governance arrangements are not merely administrative formalities. How responsibilities are allocated, where decisions are taken and how management functions are exercised can have direct tax consequences.

A properly constituted German entity with qualified local managing directors, a genuine registered address, and clear governance documentation does not create ambiguity. It creates certainty.

This is the kind of certainty that Greenfields builds for our clients every day.