BEPS and ATAD have changed the playing field for international structures. Pure mailbox solutions no longer work — neither legally nor tax-wise. What economic substance means today and how it is built.
The context: BEPS and ATAD
BEPS (Base Erosion and Profit Shifting) is the OECD project against aggressive tax planning. ATAD (Anti-Tax-Avoidance-Directive) is the EU implementation, essentially in Germany through the Anti-Tax Avoidance Act (ATAD-UmsG) since 2019. In essence: Tax structures require economic substance; otherwise, the tax office will intervene.
What 'substance' concretely means
Personal substance
- At least one managing director residing or having a habitual residence in the country of registration
- Actual exercise of management decisions on-site
- Employees for operational activities (number proportional to business volume)
- No purely 'trustee directors' who only sign
Spatial substance
- Own business premises (not just a mailbox)
- Appropriate equipment (office, IT, communication)
- For larger activities: own employees on-site
Operational substance
- Actual business activity, not just passive administration
- Own accounting and administration
- Bank accounts in the country of registration
- Contracts are concluded and executed in the country of registration
- Business decisions are made substantially in the country of registration
Rule of thumb for a holding structure: For every €10 million in managed assets, there should be at least 1 full-time employee on-site. For pure holding companies with participations: at least 1 qualified managing director plus 1 administrative employee.
The taxation of hidden reserves according to §§ 7–13 AStG
In the case of German participations in foreign subsidiaries in low-tax countries (effectively < 15%), the taxation of hidden reserves may apply. Condition: The subsidiary generates passive income (interest, licenses, certain services). Consequence: The income is taxable in Germany regardless of foreign taxation.
Defense: substance and active business activity. The subsidiary must provide its own value creation — not just manage assets.
Anti-abuse clauses in double taxation agreements
Modern double taxation agreements increasingly include 'Principal Purpose Tests' (PPT): If the main purpose of a structure is to take advantage of double taxation agreement benefits, these may be denied. This is a significant tightening compared to earlier times.
What constitutes 'sufficient' substance
For a German holding GmbH typically:
- 1 managing director residing or having a habitual residence in Germany
- Own business premises (not a virtual office)
- Membership in the Chamber of Commerce, registration in the commercial register
- Own accounting (DATEV)
- German bank connection
- At least semi-annual, documented management meetings
- Business decisions made in Germany (minutes!)
What does substance cost?
The typical ongoing costs for a substance-compliant holding (without operational activity) are €3,500–6,000 per month:
- Full-service office with secretarial support: €800–1,500
- Accounting (DATEV-FiBu): €300–500
- Annual financial statement share: €250–400
- Managing director's fee (part-time): €1,500–2,500
- Compliance, corporate tax returns, VAT: €500–800
For a holding with significant assets (> €5 million), these are calculable costs against substantial tax advantages.
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