Special Reports profit expectations of the neur who economically pays for the not economically responsible for receiving enterprise dependent work carried out for the employee,s remuneration for the employee, s employment him, regardless of whether he pays the work performed if the wage is contracts with the assigning the remuneration to the employee only part of a service remunera- and receiving enterprises himself or if another enterprise tion The use of the economic term poses as a substitute. The regional"employer"is appropriate because evidence regarding wage ex- tax office in Nuremberg has agreed it corresponds to the valuation in penses before assignment with that judicial position and article 15 of the oeCd model tions of the assigned employee; under the management of the tho allows the exemption in the scop reaty. The principle that the right a benefit test regarding wage of article 15 if the employee owe o taxation lies with the country expenses and profit contribu- his service. if he becomes acti whose tax substance is reduced by considering the operating exper time sheets for type and extent employer, if he is accountable, and relating to the employee an if the wage is not part of the price operating expenditure must be for a delivery or plant output. 3 Unlike the approach to the term The economic cost is borne by a functional employee organi- employer"used in the civil law the enterprise that pays the wage zation chart and can thus claim the operating expenditure deduction. As a result, IL. Analysis the state where that enterprise is The following is an analysis of located has the right to tax those the modifications introduced in the wages, in counterpoint to the new administrative principles, provision of operating expenditure compared with the draft version deductions dated September 2000.9 It is a welcome change Unlike the original draft, the final version lacks the statement A. Definitions(Section 2) that secondment is now that personnel secondments will It is a welcome change that not only defined e treated as the provision of a defined positively, but is also set off positively, but is also set service. That is a logical conclusion secondment is now not only because there can hardly be a against an exchange of services on off against an exchange service provision by the assigning the basis of a service agreement of services on the basis enterprise if the receiving enter- The administrative principles use of a service agreement prise becomes the economic the economic interpretation of the mployer. Whether a service is term"employer, rather than provided by the assigning enter adopting the definition provided in prise is to be examined when the the wage tax law, and thus corre- spond to the Federal Tax Court's legal practice and tax authorities current interpretation. Under wage tax law, the definition of the term“ employer” can be indirectly derived from the terms"employee and the wage tax law, the question Kroppen/Roeder, supra note 1 at 435 ,see For an analysis of this first version within the scope of section 1 of the as to who pays the employee's IoLohnsteuerdurchfuhrungsverordnung regulation regarding payroll tax remuneration is now the focus of as of 10 Dec 1989. the term employer is then defined attention l For the term"employee" in a civil law s that person with whom a Therefore, the negative demar- Gesetzbuch(Munchen: Beck Verlag 2001), certain individual has an employee cation of an employee secondment inleitung zu section 611 note 6: Schmidt- and the chosen definition contrib- (Munchen: Beck verlag 2001)section 3 A Federal tax Court decision ute to a clarification of the tax law ote 4 dated 21 August 1985 ruled in a Because there is no"employee 1-Ref. No. I R 63/80. Federal Tax case involving Germany's income secondment but rather the Bulletin 1986 Il, p 4, 5 tax treaty with Spain that the provision of a service, taxation by wording of article 15, paragraph the state where the service has al Tax Office Nuremberg reg. lit. b DTt("if remuneration is paid been rendered is not appropriate, p.39 of12sept.1989,p.1301-357,DStR1990 by one employer or for 5 of the basis of article 15 employer) points to the use of the OECD model treaty, in that the en- Unternehmensbesteuerung (Munchen term"employer"as that entrepre- terprise in the receiving country is Beck ve 999),p.1036f 4 February 2002 Tax Notes International• profit expectations of the receiving enterprise; • the employee’s employment contracts with the assigning and receiving enterprises; • evidence regarding wage ex￾penses before assignment; • a benefit test regarding wage expenses and profit contribu￾tions of the assigned employee; • time sheets for type and extent of the work; • travel expense accounts; and • a functional employee organi￾zation chart. II. Analysis The following is an analysis of the modifications introduced in the new administrative principles, compared with the draft version dated September 2000.9 A. Definitions (Section 2) It is a welcome change that secondment is now not only defined positively, but is also set off against an exchange of services on the basis of a service agreement. The administrative principles use the economic interpretation of the term “employer,” rather than adopting the definition provided in the wage tax law, and thus corre￾spond to the Federal Tax Court’s legal practice and tax authorities’ current interpretation. Under wage tax law, the definition of the term “employer” can be indirectly derived from the terms “employee” and “employment status (service)” within the scope of section 1 of the regulation regarding payroll tax;10 the term employer is then defined as that person with whom a certain individual has an employee relationship.11 A Federal Tax Court decision dated 21 August 198512 ruled in a case involving Germany’s income tax treaty with Spain that the wording of article 15, paragraph 2, lit. b DTT (“if remuneration is paid by one employer or for one employer”) points to the use of the term “employer” as that entrepre￾neur who economically pays for the dependent work carried out for him, regardless of whether he pays the remuneration to the employee himself or if another enterprise poses as a substitute. The regional tax office in Nuremberg has agreed with that judicial position and allows the exemption in the scope of article 15 if the employee owes his service, if he becomes active under the management of the employer, if he is accountable, and if the wage is not part of the price for a delivery or plant output.13 Unlike the approach to the term “employer” used in the civil law and the wage tax law, the question as to who pays the employee’s remuneration is now the focus of attention. Therefore, the negative demar￾cation of an employee secondment and the chosen definition contrib￾ute to a clarification of the tax law. Because there is no “employee secondment,” but rather, the provision of a service, taxation by the state where the service has been rendered is not appropriate, on the basis of article 15 of the OECD model treaty, in that the en￾terprise in the receiving country is not economically responsible for the employee’s remuneration for the work performed if the wage is only part of a service remunera￾tion. The use of the economic term “employer” is appropriate because it corresponds to the valuation in article 15 of the OECD model treaty. The principle that the right to taxation lies with the country whose tax substance is reduced by considering the operating expense relating to the employee an operating expenditure must be observed.14 The economic cost is borne by the enterprise that pays the wages and can thus claim the operating expenditure deduction. As a result, the state where that enterprise is located has the right to tax those wages, in counterpoint to the provision of operating expenditure deductions. Unlike the original draft, the final version lacks the statement that personnel secondments will be treated as the provision of a service. That is a logical conclusion because there can hardly be a service provision by the assigning enterprise if the receiving enter￾prise becomes the economic employer. Whether a service is provided by the assigning enter￾prise is to be examined when the 514 • 4 February 2002 Tax Notes International Special Reports 9 For an analysis of this first version, see Kroppen/Roeder, supra note 1 at 435. 10Lohnsteuerdurchführungsverordnung as of 10 Dec. 1989. 11For the term “employee” in a civil law sense, see Palandt-Putzo, Bürgerliches Gesetzbuch (München: Beck Verlag 2001), Einleitung zu section 611 note 6; Schmidt￾Drenseck, Einkommensteuergesetz (München: Beck Verlag 2001) section 38 note 4. 12Ref. No.: I R 63/80, Federal Tax Bulletin 1986 II, p. 4, 5. 13Regional Tax Office Nuremberg reg. of 12 Sept. 1989, p. 1301-357, DStR 1990, p. 39. 14See Jacobs, Internationale Unternehmensbesteuerung (München: Beck Verlag 1999), p. 1036 f. It is a welcome change that secondment is now not only defined positively, but is also set off against an exchange of services on the basis of a service agreement