Knowledge
25 Minute
Foreign Company Series, Part 1. By Norbert Péter.
“The meetings take place abroad, so there is the place of management.” I check this shortened statement here. Minutes of a meeting may provide evidence of a decision. However, it does not in itself prove where a company is actually run. Nor does a laptop in Germany alone decide on all tax consequences.
Anyone who wants to document the place of management of a foreign company should have a continuous chain of documents: Who was allowed to decide, who actually decided, where did this happen and how was the decision implemented? This includes responsibilities, meetings, contract statuses, bank releases and ongoing filing. These documents must reflect the actual operation. A suitable story does not help.
What § 10 AO Actually Calls a Place of Management
Section 10 Tax Code defines place of management as the ‘center of business overhead management’. A distinction is crucial for the skill test: The day-to-day management of ordinary operations is different from the establishment of basic company policy by the owners.
The Application Decree on § 10 AO focuses on actually perceived day-to-day transactions. Fundamental shareholder decisions are not decisive for this. In the case of several places of activity, management tasks shall be weighted according to their importance. The nature, scope and structure of the company are part of the individual case examination.
I would therefore not only document the extraordinary company purchase. Equally revealing can be ongoing decisions about suppliers, personnel, prices or liquidity. Which operations really have a management function depends on the business. An operating commercial company requires documents other than a company whose activities mainly concern holdings.
Decision-making competences: Who can actually decide what?
I will start with a simple list of competences. For each important business area, there is the responsible person, their powers, necessary consents and representation in absentia. The social contract, rules of procedure and powers provide the formal framework for this. The actual operation must also remain recognizable.
In particular, I would consider consent reservations: Can the management decide for themselves on site or must every relevant question be passed on to a person in Germany? Signature power does not yet answer this question. Anyone who only executes an already predetermined decision does not automatically take over the actual management.
Changes must be stored with validity date. Today’s power of attorney does not readily explain who was in charge six months ago. Old versions are therefore preserved so that a process can be assigned to its decision-making framework at that time.
Meetings and minutes: Recording the decision path
A usable protocol holds more than date and result. I would take the opportunity to include participants, actual places of participation, decision-making bases, alternatives that have been examined and implemented. In a video conference, the blanket statement “session in Budapest” is not very meaningful if several participants from other countries were involved.
It is also important whether the decision arose in the meeting or was already determined beforehand. This includes invitation, agenda, submitted documents and the relevant prior communication. A record should reflect open points and disagreements as far as they are relevant to the process.
I would create protocols in a timely manner and give the parties involved for confirmation. Later additions receive their own date and a comprehensible occasion. Missing documents may remain visible as a gap. Backdated versions or invented places of participation falsify just what is to be explained.
Differentiate subscription rights and contracts
For contracts, I am interested in the complete decision-making chain: Who negotiated the terms? Who assessed risks and profitability? Who released the final version? Who signed with what power of representation? And where did these steps actually take place?
The signed final version alone often shows only the last step. Relevant drafts, traceable approvals and the associated power of attorney can explain the creation. For electronic signatures, an existing verification report is part of the process. However, it does not automatically occupy the location of the decisive decision-making.
I therefore expressly separate negotiation, decision and signature. If these tasks are distributed among different people, the file should show this distribution. A local signature does not cure a contradictory actual distribution of tasks.
Bank releases: distinguishing decision and technical execution
For payments, I would merge invoice or contract basis, factual check, payment order and releases. In the case of a release by two persons, it must be possible to see whether both test independently or one person only performs the technical step.
Bank powers of attorney and authorization overviews explain the permitted accesses. Release protocols show their use. Nevertheless, the decision on liquidity, payment time or financing may have been made elsewhere beforehand. Exactly this connection between economic decision and banking process should be maintained.
A foreign bank account does not prove a foreign place of management. Technical connection data can also provide additional information if necessary. I would not collect passwords or full credentials in a decision file. Relevant are proven roles and processes.
Ongoing storage instead of subsequent reconstruction
My organizational proposal is a file with a unique identifier. This is the basis for decision-making, release, protocol, final contract and proof of implementation. A short register links these files to the date, responsible person and business area. In this way, the documentation remains comprehensible even when personnel change.
The original files and their origin data should be preserved. Amendments and new versions shall be distinguishable; Access rights and safeguards are part of the process. Legal storage periods, data protection and special requirements for storage must be clarified separately. This organisational assistance does not replace accounting rules.
Requirements for international conduct Section 90(2) AO increased participation in the investigation and gathering of evidence. I would therefore clarify at an early stage which documents are available at banks, managing directors or service providers and how the company can access them. A later request should not trigger the search for responsibilities.
My test method for a comprehensible decision-making act
As a practical sample of work, I would select some actually completed tasks from different business areas. This is an organizational test, not a legal proof test and no guarantee for a tax classification.
- Assign responsibility: Which person was empowered to make decisions at the time?
- Reconstruct the process: What documents and votes led to the decision?
- Recording actual places: Where did the key stakeholders work in the relevant steps?
- Compare implementation: Do the decision, contract, payment and actual implementation correspond?
- Specify the objections: Which gaps or deviations require technical clarification?
The question is not how thick the folder gets. The decisive factor is whether a third party can understand the real process on the basis of related evidence. Formal documents and actual conduct must not contradict each other.
What clarifies the overall picture and what remains open
I would not draw a fiscal conclusion from a single document. A meeting abroad, a German residential address or a specific device are not a complete explanation in isolation. Recurring processes, actual powers and the importance of individual management tasks must be considered together.
The broader structural question is addressed by the existing contribution on foreign companies and actual business activities. Completed to define the economic project Foreign company or real expansion the background. The preparation before a new company describes the area form a company.
My role is organizational preparation. I am neither a lawyer nor a tax consultant. The legal assessment, possible tax obligations and the interaction with foreign law or double taxation agreements belong to licensed professionals. The practical consequence remains: documenting decisions in a comprehensible manner during ongoing operation and submitting recognizable contradictions for examination at an early stage.
