Germany: 252. German Taxation of Satellite Operators

Alexander Loh, KPMG Frankfurt

As an update, we note that the appeal of the judgement of 30 April 1997 of the Rhineland-Palatinate Tax Court (EFG 1998, 562; see KPMG German News no. 3/1998 at p. 22 = article no. 152;) was decided by the Federal Tax Court (FTC) in its judgement of 17 February 2000 (I R 130/97 – IStR 2000, 438).

The FTC affirmed the lower court's judgement and endorsed its reasoning. As a consequence, the income derived by the Luxembourg satellite operator was not taxable in Germany. The case involved the Astra 1 A satellite, which broadcast television programmes for reception in Germany.

The case turned on whether the satellite operator had leased a transponder for use by a German television broadcaster (causing the satellite operator to derive lease and rental income under § 21 EStG or "other income" under §22 EStG), or had obligated itself to provide satellite transmission services (causing the satellite operator to derive commercial business income under § 15 EStG). The high court agreed with the lower court that the contract involved the performance of commercial business services.

Subject to certain exceptions not presented by the case at hand, income from commercial business activity is not taxable in Germany unless derived through a German permanent establishment. Since the Luxembourg satellite operator had no permanent establishment in Germany, the FTC affirmed the lower court's holding that the income in question was not taxable in Germany under German domestic tax law.

The German nexus required to tax a non-resident's lease and rental income or "other income" is not as strict, hence the attempt by the tax authorities to characterise the income in question as falling into one of these categories. German tax law defines seven categories of taxable income in all.

Please see the article on the lower court decision for further detail.

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