1.4.1  Definition of taxes and ancillary charges
Taxes: Monetary payments that are not compensation for specific services and collected by a public law entity (solely for the purposes) of earning revenues
Ancillary charges: deferral fee, late-filing fee, late-payment fee, interest, coercive fee, expenses, fees for not complying with transfer pricing documentation requirements

1.4.2  Fundamental principles

Taxation according ability to pay: Taxes are assessed according to the individual’s ability to pay and on business income earned
(no) retrospective taxation: The tax charge arises at the end of the assessment period. All tax laws can be changed until then (in principle)
Equality: Examples: No taxation according to nationality; taxation does not depend on whether income is legally or illegally earned; no taxation if the state cannot guarantee that (basically) all taxpayers comply
Consistency Examples: No taxation of the same income with both gift tax/inheritance tax and income tax; tax rates should not depend on the sources of income
Legality: Claims shall arise from the tax debtor-creditor relationship as soon as the matter to which the law attaches liability for payment has occurred
Whenever there is a certain fact pattern, which the law considers to be a taxable event, the tax charge comes into existence. In most cases, this cannot be reversed

1.Concepts in taxation 
2.1 Excursus: Types of income under German law
–  Income from dependent services (employment income)
–  Investment income (dividends, interest, capital gains derived from shares and bonds)
-Rental income
– ‘Other’ income (pension payments, annuities)
– Income from independent services (self-employed individuals)
– Farming & forestry income
–  Business income

      2.2 Direct taxes/indirect taxes
Definition of direct taxes: -The taxpayer is identical with the economically burdened person
– Individual ability to pay is decisive
– Difficult administration, complex determination of tax base

      2 .Definition of indirect taxes
-The taxpayer and the economically burdened person are not identical (at least in theory; that principle is being eroded)
— The taxpayer and the economically burdened person are not identical (at least in theory; that principle is being eroded)
– Easier to administrate (at least in theory, that principle is also being eroded)
Relevant direct taxes for purposes of business taxation:
– (personal) income tax (with a maximum marginal tax rate of 45%)
 -.corporate income tax with a flat rate of 15%
– solidarity surcharge of 5.5% on the personal income tax charge or corporate income tax charge
– trade tax with rates between 10% and 18%

2.3Unlimited taxation/limited taxation

Definition of unlimited taxation:
The taxpayer is taxed on his/her/its worldwide income, namely.
– Individuals based on their place of residence or their habitual place of abode

DEFINITION OF RESIDENCE (sec. 9 general fiscal code)
– Persons shall be resident at the place at which they maintain a dwelling under circumstances from which it may be inferred that they will maintain and use such dwelling

Definition of habitual place of abode (sec. 9 General Fiscal Code)
persons shall have their habitual abode at the place at which they are present under circumstances indicating that their stay at that place or in that area is not merely temporary. An unbroken stay of not less than six months’ duration shall be invariably and from the beginning of such stay regarded as an habitual abode in the territory of application of this Code; brief interruptions shall be excepted. The second sentence shall not apply where the stay is undertaken exclusively for visiting, recuperation, curative or similar private purposes and does not last more than one year

–  Corporation based upon their statutory seat of effective place of management
– Partnerships based on the place of where the business is carried on 
Limited taxation:
– The taxpayer is not resident in Germany or does not have its statutory seat in Germany
 –  Hence, Germany only has a right to tax to the extent that the income is connected with Germany; i.e. Germany’s right to tax is limited (hence limited taxation)
 –  NB: The taxpayer is probably a tax resident of another country and subject to tax on the worldwide income in that country; i.e. there can be double taxation
– The necessary connection is defined in the law (“nexus”)

Limited taxation of business income is based on two concepts; viz        – The concept of a permanent establishment, or
   – the concept of a permanent representative